NOTICE

DRAFT

FOR DISCUSSION ONLY

The term does not cover interactions among computer programs within a person’s own system – the access must be to another person’s system. Thus, when a licensee of a spreadsheet uses it to interact with and obtain information from computers on the licensee’s network, that is not an access contract because the licensee is supplying all programs and systems. However, another person can provide the equivalent of access, and thereby create an access contract, even though the information is only used in the licensee’s system. For example, an on-line data provider may elect to provide access to data in part by allowing its database to be loaded into the computer of a client, this performance retains all characteristics of an access contract and is within the definition. The same is true if the contract allows a copy of the database to be loaded into the user’s system, but the data are intermittently updated with data from remote systems. On the other hand, if a software publisher simply allows downloading of software into a licensee’s system, the continuing right to use the software after it is downloaded is not an access contract.

An access provider may, or may not, be able to give contractual rights in the information accessed. Some transactions entail a three-party framework: in addition to the customer, one licensor provides access, while another (the content provider) licenses the information. This transaction involves two and, in some cases, three contracts. The first is between the content provider and the access provider. The second is between the access provider and the end user. The third arises if the content provider contracts directly with the end user, that too is an access contract. The contracts are independent of each other.

2. "Agreement". This term is from Uniform Commercial Code § 1-201 (1998 Official Text). As in Article 1, whether an agreement has legal consequences is determined by this Act or other applicable law. The term includes full recognition of usage of trade, course of dealing, course of performance and the surrounding circumstances as effective parts of an agreement. The meaning of the agreement of the parties is determined by the language they use and their actions, interpreted in the light of commercial practice and other surrounding circumstances. See Section 113(b); Section 301 (parol evidence rule). Whether an agreement has legal effect5 is determined by this Act. Section 114(d).

3. "Attribution procedure." An "attribution procedure" is a procedure to identify the person who sent an electronic message, or to verify the absence of changes in its content, agreed to or adopted by the parties or otherwise established by applicable law. The agreement may occur between the two parties or through a third party. For example, the operator of a multi-database system which includes information provided by third parties, may arrange with database providers and customers for use of a particular attribution procedure. Those arrangements, although made with the third party, establish an attribution procedure for purposes of this Act between the customers and the individual database providers. The substantive provisions related to attribution are set out in Sections 108 and 213.

4. "Authenticate." This term replaces "signature" and "signed." A similar change is in Uniform Commercial Code Article 9 (1998 Official Text). The definition makes clear that qualifying electronic systems are adequate for what once were paper-based requirements. The definition is technologically neutral.

Any signature under prior law is an authentication under this Act. Like a signature, an "authentication" may express various effects. The ordinary effects are (i) accepting an agreement, and (ii) adopting of a record or specific term(s). Authentication may serve other functions such as confirming the content of the record or identifying the person. What effects are intended are determined by the context and objective indicia associated with that context. There is no requirement that the authentication be in a record retained by a party.

Authentication may be on, logically associated with, or linked to the record. In digital technology, the analogy between signing a record electronically and signing a paper is not precise. "Logically associated" makes it clear that the association between an authentication and a record need not be physical in nature. It can be electronic. However, there must be an association supporting the inference that the authenticating party intends to adopt or accept the associated or referenced record. "Referring to" or "linked to" captures a similar concept applicable to the Internet and similar systems, indicating that it is adequate to have an electronic connection, such as an Internet hyperlink.

Authentication includes qualifying use of any identifier such as a personal identification number (PIN) or a typed or otherwise signed name. It includes qualifying actions and sounds such as encryption, voice and biological identification, and other technologically enabled acts. A voice print, voice recognition, or similar technology is adequate if, as with the other options, done with the proper intent In all cases, of course, establishing the efficacy and the commercial reasonableness of attribution is covered by Sections 108 and 213.

5. "Automated transaction." This term refers to contracts formed automatically and which are effective even though one or both parties is represented by an electronic agent instead of a human being (an individual). Operations of automated systems can create binding legal obligations for those who use them for that purpose. It may be that in some systems a human might actually review a particular transaction or aspect of it before the transaction is completed, such as when there is a problem with the system. If such review is made other than in the ordinary course, the transaction still can qualify as an automated transaction.

8. "Cancellation." This definition follows the Uniform Commercial Code § 2-106(4) (1998 Official Text); no substantive change is intended by language variations. Cancellation is a remedy for breach. The effect of cancellation is stated in Section 802.

9. "Computer". The definition of "computer" draws on definitions in federal and state criminal, tax and other statutes regarding computers. The definition should be applied by the courts with common sense. The term does not include a traditional television set, radio or toaster even though it includes a computer chip. It might include new generations of machines that combine computation, word processing, Internet access, and traditional broadcast reception. Under various state statutes, unauthorized access to a computer is a crime, but while the definition of computer in those statutes is typically broad, courts exercise discretion and common sense in applying the definition which should also apply here. Thus, while an automobile might contain a computer or several computers, the automobile is not itself a computer.

10. "Computer information." This term focuses on information that is in an electronic form that is obtained from, accessible with, or useable by, a computer; it includes the information as well as a copy of it (e.g., diskette containing the information) and its documentation (including non-electronic documentation). The reference to "electronic" by that definition includes digital or information in a form having similar capabilities covering analog and future computational technologies, eliminating the possibility that a limit to "digital" technology would limit the Act to current technology. The term does not include information merely because it could be scanned or entered into a computer; it is limited to electronic information in a form capable of being directly processed in a computer. The term does not generally include printed information or other non-digital formats in which information is encompassed, but which are not directly useable in computers.

11. "Computer information transaction." This term establishes the scope of this Act. (Section 103) It requires an agreement involving computer information. The mere fact that parties agree to communicate in digital form does not bring a transaction within this definition, nor does a decision by one party to use computer information when the contract does not require it to do so. An agreement to use e-mail to communicate about a contract for shipment of petroleum does not bring that transaction within this definition. A contract for an airline ticket is not a computer information transaction simply because the ticket may be in digital form. The subject matter is not the computer information, but the service – air transportation from one location to another. The term does not cover the many cases in which a person provides computer information to another for purposes of another transaction, such as making an employment or loan application.

The term includes transfers of computer programs and software development contracts. A transaction is not for the "creation" of computer information in the sense intended here where the contracted-for activities are merely secretarial or clerical in nature. The computer information must be created, i.e, produced through some business, professional, artistic, or imaginative effort.

11. "Computer program." The first sentence parallels copyright law. 17 U.S.C. § 101 (1998). The second sentence distinguishes between computer programs as operating instructions and "informational content" communicated to human beings. As used in this Act, "computer program" refers to functional and operating aspects of a digital or similar system, while "informational content" refers to output that communicates to a human. For any issue requiring this distinction, the answer lies in whether the issue concerns operations (program) or communicated content (informational content). This definition pertains solely to contract law issues. It does not relate to the copyright law issue of distinguishing between a process and copyrightable expression. The distinction here is more like that in copyright law between a computer program as a "literary work" (code) and output as an "audiovisual work" (images, sounds). In copyright, that distinction relates to property and infringement issues. In this Act, the distinction relates to contract law issues such as liability risk and performance obligation.

13. "Consequential damages." This is from Uniform Commercial Code § 2-715(2)(1998 Official Text). The definition does not specifically exclude losses that could be avoided by mitigation through cover or otherwise, but a duty to mitigate is an express limit on all damage claims under Section 807; no change in law is intended. A party can recover compensation only for losses that it could not reasonably have avoided. Of course, the idea of avoidance through reasonable steps such as cover or otherwise must be assessed with due regard to how damages are measured. For example, where recovery is based on the idea of lost volume, the damages measure itself assumes that another transaction is not a substitute for the first (lost) transaction and the idea of mitigation through a replacement transaction is not germane. See discussion of substitute transactions in Sections 808 and 809.

Consequential damages do not include "direct" or "incidental" damages. Consequential loss includes loss of anticipated benefits as a result of not being able to exploit or rely on the expected contracted performance, such as lost profits, damage to reputation, lost royalties that would have been accrued from a licensee’s proper performance, lost value of a trade secret from wrongful disclosure or use, lost income from wrongful gains for the other party from misuse of confidential information, loss of privacy, and loss or damage to data or property caused by a breach.

Except as provided in Section 807 or as limited by agreement, consequential damages may be recovered by either party. The losses must be an ordinary and predictable result of the breach. They must have been foreseeable. For the injured party to recover for economic losses resulting from its special circumstances, the party in breach must have had notice of those circumstances at the time of contracting. In contrast, losses from ordinary general requirements can often be presumed to have been within the contemplation of the other party. In addition, to be foreseeable the losses must not result from atypical risk taking by the aggrieved party, such as in a failure reasonably to maintain back-up systems for retrieval of data.

Damage to other property (e.g., property not within the contract itself) may be consequential damage. The definition follows Article 2 of the Uniform Commercial Code regarding personal injury or property damage by requiring proof that the damage "proximately" resulted from the breach. If injury follows use of a computer program without discovery of a defect causing the damage, the question of "proximate" cause includes considering whether it was reasonable for the injured party to use the information without inspection that would have revealed the defect. Also, proximate causation may not exist where damages result from misuse or a use that violates clear warnings against the particular type of use.

The term does not include direct damages.

14. "Conspicuous." This definition is from Uniform Commercial Code § 1-201(10) (1998 Official Text), but adjusts the standard to reflect modern practice, including electronic commerce. Whether a term is conspicuous is determined by the court. Section 114. This Act also uses the concept of manifesting assent to a contract term in some cases as a means of ensuring that a term is called to the attention of a reasonable person. "Conspicuous" does not relate to or change any requirement of any other law that specifies the content, timing or manner of disclosure of information or warnings.

A term is conspicuous if it is so positioned or presented that the attention of an ordinary individual reasonably ought to have been called to it. Often, conspicuous terms are presented in a record, but the concept is not so limited; it includes verbal or automated voice presentation that meets the basic standard. Whether a term is conspicuous is gauged by the condition of the message as it would be received or first viewed by a person using an ordinary system or method of receiving or reviewing such messages unless, of course, the provider of the term knows that the recipient is using a different system. If a transaction involves use of an electronic agent, presentation of the term must be capable of invoking a response from a reasonably configured electronic agent.

As in Uniform Commercial Code Section 1-201(10) (1998 Official Text), this Act delineates some methods of making a term conspicuous. The policy behind requiring that a term be conspicuous blends a notice function (the term ought to be noticed) and a planning function (giving certainty to the party relying on the term on how that result can be achieved). The illustrations establish safe harbors intended to reduce uncertainty and litigation. The illustrations are not exclusive. Outside the illustrative safe harbors, the general standard governs.

The definition updates prior law under the Uniform Commercial Code and recognizes methodologies relevant in electronic commerce. Paragraph (A)(ii) contemplates setting off the term or a label by symbols so that conspicuous formatting can be reliably transferred in electronic commerce (font size, color and other attributes might not always be transferable). It includes a term or reference that provides: *** Disclaimer *** or <<< Disclaimer >>>. Paragraph (A)(iii) deals with hyperlinks and related Internet technologies. It contemplates a case in which a computer screen displays an image or term or a summary or a reference to it, and the party using the screen, by taking an action with reference to it, is promptly transferred to a different display or location wherein the contract term is available. To be conspicuous, the image, term, summary or reference must be prominent and its use must readily enable review of the term. The access must be from the display and not by taking other actions such as a telephone call or driving to a store. When the term is accessed, it must be readily reviewable. The fact that an entire contract record is prominently referenced does not automatically mean that a particular term in that record is conspicuous. Good faith in the performance of these provisions is required. Section 114. If other law requires specific content, location, or timing of disclosure, those requirements apply under Section 105 and Section 114.

Paragraph (B) operates independently of paragraph (A) and recognizes a procedure by which, without taking action with respect to the term or reference, the party cannot proceed. Thus, a screen that states: "There are no warranties of accuracy with respect to the information" in a manner that might not meet paragraph (A),but is displayed in a way that precludes the user from proceeding without assenting to or rejecting this condition, suffices.

15. "Consumer" and "consumer contract." A "consumer" is a human being (individual) who obtains information primarily for personal, household, or family purposes. Whether an individual is a consumer with reference to a particular transaction is determined at the time of contracting. It depends on the then intended use of the information. Many "personal" contracts are not consumer contracts (e.g., stock broker employee of a brokerage house personally acquiring software to monitor client investments). The definition distinguishes profit making, professional or business use, from non-business, personal or family use. Only when the contract is primarily for the latter is there a consumer contract. The profit-making standard for determining whether a transaction is a consumer contract is followed in many other areas of law. See, e.g., Thomas v. Sundance Properties, 726 F.2d 1417 (9^th Cir. 1984); In re Booth, 858 F.2d 1051 (5^th Cir. 1988); In re Circle Five, Inc., 75 B.R. 686 (Bankr. D. Idaho 1987); Truth in Lending Act, 15 U.S.C. § 1603 (excluding from the act’s protection of consumer credit, extensions of credit "primarily for business, commercial, or agricultural purposes"). A purpose stated in the agreement would ordinarily determine the purpose of the transaction for this definition.

16. "Contract." This is from Uniform Commercial Code § 1-201(11) (1998 Official Text).

17. "Contract fee." This term includes any monetary payment required under a contract.

18. "Contractual use term." This term includes any enforceable restriction that defines or limits access to, use or disclosure of information or informational rights created by a contract under this Act. Use terms relate only to the copies and information provided under the contract. Unless otherwise expressly indicated, a contractual use term does not govern use of the same information lawfully obtained from other sources. The be within this definition the use restriction or permission must come from a contract. The term does not include limitations imposed by property or regulatory law. The term must be enforceable under this Act and other law to be within the definition. Thus, if trade secret law precludes enforcement of a particular non-competition term, that term is not a contractual use term to the extent of its unenforceability.

19. "Copy." This term refers to the media containing information. In this Act, the term is used with reference to questions associated with contractual events such as delivery, tender, and enabling use. For these purposes, in appropriate cases, the time during which the information is fixed on a media can be temporary if this fulfills the purpose of the performance. This Act does not deal with the copyright law question of whether a brief reproduction in computer memory is an infringement. Stenograph v. Bossard, 46 U.S.P.Q.2d 1936 (D.C. Cir. 1998); MAI Systems Corp. v. Peak Computer, Inc., 991 F.2d 511 (9th Cir. 1993).

20. "Course of dealing." This is from Uniform Commercial Code § 1-205 (1998 Official Text). The term is restricted to a sequence of conduct between the parties prior to the agreement at issue.

21. "Course of performance." This is from Uniform Commercial Code § 2-208 (1998 Official Text). Conduct prior to the agreement is covered under the related term "course of dealing." Both are part of the commercial approach to understanding contracts based on practical interpretation adopted in this Act. The parties themselves know best what they meant by their agreement and their conduct is often the best indication of what that meaning was. A course of performance is always relevant to determine the meaning of the agreement. See Uniform Commercial Code § 1-205, comment 2 (1998 Official Text).

22. "Delivery." Delivery can occur either through transfer of possession of a tangible copy or by electronic transfer. In electronic transfers, a copy may not move from one location to another. Transfers often entail copying the information into another location or making it available for use in a common system shared or accessible by the recipient and the person making the delivery.

23. "Direct damages." Direct damages are compensation for losses associated with the value of the contracted for performance itself as contrasted to loss of a benefit expected from intended use of the performance or its results. Direct damages are measured by formulae in Sections 808(b) and 809(a). They are capped by the contracted-for price and market value for the performance as appropriate. This Act rejects cases that treat as direct damages losses that relate to anticipated benefits from use of information such as Chatlos Systems, Inc. v. National Cash Register Corp., 670 F.2d 1304 (3d Cir. 1982). Those are consequential damages. Thus, if a computer program is purchased for $1,000 and, if merchantable, would yield profits or cost savings in business of $10,000, but it is totally defective, "direct" damages are $1,000. If recoverable, the lost profits or expected cost savings are consequential damages. .

24. "Electronic." This term is open-ended, technology neutral, and encompasses forms of information processing technology that may be developed in the future.

25. "Electronic agent." This term refers to an automated means for making or performing contracts. The agent must act independently in a manner relevant to creation or performance of a contract. Mere use of a telephone or e-mail system is not use of an electronic agent. The automated system must have been selected, programmed or otherwise used for that purpose by the person that is bound by its operations. The legal relationship between the person and the automated agent is not fully equivalent to common law agency, but takes into account that the "agent" is not a human. Parties who adopt use of electronic agents are ordinarily bound by the results of their operations.

26. "Electronic Message." A message is distinguished from a "record" by the fact that it is intended to be communicated to another person or an electronic agent; it does not merely record information. Communication of a message may entail copying it into another location or making it available for use in a common system shared by or accessible to the recipient. In effect, it is stored or generated for purposes of communicating to another.

27. "Financial accommodation contract." A financial accommodation occurs in a loan in whole or in part for information or in a lease of a copy of computer information. The recipient of the accommodation is the licensee. A security interest is not within this definition; security interests are governed by Uniform Commercial Code Article 9. An agreement under which royalties for use of information accrue over time and are paid periodically is not a financial accommodation, but simply a royalty-bearing license (or assignment) of rights in the information. The financial accommodation contract can be in any form, including in a lease of goods or a lease of software.

28. "Financial services transaction." This term includes a variety of financial system activities and transactions governed under federal and other state law and are not covered in this Act. Section 103(d).

29. "Financier." A financier is a lender or a lessor dealing with the licensee under a financial accommodation contract. The financier may have any of several relationships to licensed computer information. One relationship is that the financier obtains rights as a licensee for purposes of transfer to the eventual licensee who is also the accommodated party. This is like a finance lease under Uniform Commercial Code Article 2A, but deals with licensed computer information, rather than leased goods. A second relationship is where the party giving the accommodation does not obtain rights in the license as against the licensor, but obtains a contractual right to prevent the licensee’s use of the information in the event of breach of the financial accommodation contract.

The licensor of the underlying license is not a financier for purposes of this Act. The licensor may obtain a security interest under Article 9 and would, with respect to that interest, have the rights of a secured party under Article 9.

30. "Good Faith." This definition adopts an expanded version of Uniform Commercial Code § 1-201 (1998 Official Text), conforming more to Uniform Commercial Code § 2-103(b) (1998 Official Text). It rejects the pure "honesty in fact" as the sole standard. While good faith in performance of contractual obligations or rights is an element of all contracts covered by this Act, the obligation of good faith does not over-ride express contract terms or the right to enforce them. See Kham & Nates Shoes No. 2, Inc. v. First Bank of Whiting, 908 F.2d 1351 (7^th Cir. 1990); Amoco Oil Co. v. Ervin, 908 P.2d 493 (Colo. 1995); Badgett v. Security State Bank, 116 Wn.2d 563, 807 P.2d 356 (1991). The primary application of the concept is that, when a party has discretion under the contract, that discretion should be exercised in a good faith manner. Davis v. Sears, Roebuck & Co., 873 F.2d 888 (6^th Cir. 1989). Good faith does not require a party act to benefit or avoid harm to the other at the cost of advantages that it fairly has obtained for itself under the agreement.

Good faith is not a negligence or reasonable care standard. "Observance of reasonable commercial standards of fair dealing" is concerned with the fairness of the conduct rather than the care with which an act is performed. Both fair dealing and ordinary reasonable care are judged in light of reasonable commercial standards, but the standards in each case are directed to different aspects of commercial conduct.

31. "Goods." This definition corresponds to proposed revisions of Uniform Commercial Code, 1999 proposed draft. It clarifies that computer information, including computer programs, are not goods for purposes of this Act. The definition does not alter definitions of goods or tangible products under any other law.

32. "Incidental damages." This term corresponds to use of the same term in Uniform Commercial Code Article 2 (1998 Official Text). Incidental damages are expenses incurred after breach. The term includes the cost of seeking or arranging for mitigation, but not the actual expenditure for the mitigation itself, which are covered in measuring direct or consequential damages.

33. "Information." This term embraces a wide range of subject matter, but its use in this Act is limited to transactions within the Act’s scope. As used here, "data" refers to facts whether or not organized or interpreted. Data is not limited to subject matter to which informational property rights attach. It includes factual data if the data are the subject of a contractual relationship. A "mask work" is defined in federal law; the term refers to a representational technology used in creation of semiconductor products.

34. "Information processing system." This term includes computers and other information processing systems. In this Act, the term is used primarily in reference to sending and receiving notices. In that context, whether the system is a computer is not pertinent.

35. "Informational content." This is information whose ordinary use involves communication of the information to a human being (individual). This is the information humans read, see, hear and otherwise experience. For example, if an electronic database of images includes the images and a program enabling display or access to the images, the images are informational content while the search program is not. The Westlaw search program is not informational content, but the text of cases and statutes is. The term applies based on the nature of the information even if the person creating the informational content does not intend to reveal it to others; this is because preparation inevitably involves an intent that the information be perceivable by its creator.

36. "Informational rights." This term includes, but is not limited to "intellectual property" rights. It also includes rights created under any law that gives a person a right to control use of information independent of contract, such as may be developing with reference to privacy law. Other laws determine when such rights exist and, as with traditional intellectual property law, the rights need not be exclusive as to all other persons and all uses. This Act does not modify those laws under which such rights are created and exist. The term does not include mere tort claims such as the right to sue for defamation.

37. "Knowledge." This is from Uniform Commercial Code § 1-201(25) (1998 Official Text). It does not include constructive notice or any duty to inquire.

38. "License." A license is an agreement entailing a limited or conditional contractual transfer of information or a grant of limited or restricted contractual rights or permissions to use information. A contract right entails an affirmative commitment that a party can engage in a specific use, while a contract "permission" means simply that the licensor will not object to the use. Either can be the basis of a license. No specific formality of language is required. For purposes of this Act, the term includes consignments of copies of information, but does not otherwise alter the nature of a consignment. This definition is solely for purposes of this Act and does not alter treatment under other laws, such as tax law.

A transaction is not a license merely because as a matter of law, a transferor retains informational property rights that restrict the transferee’s ability to use the information. The term thus does not include a unrestricted sale of a copy; such a sale lacks express contractual restrictions on use. Similarly, a "copyright notice" which merely states the rights or restrictions in a first sale under copyright law does not change an unrestricted sale of a copy into a license. To be a license, the contract must control the rights. A license exists if a contract grants greater privileges than a first sale, restricts privileges that might otherwise exist, or deals with other issues of scope of use. Whether such terms are enforceable is determined under this Act and applicable federal law. However, this Act does not affect the enforceability of copyright notices that are not part of a contractual relationship.

A license is a contract. To create contractual terms of license, the requirements for an agreement must be met. The term does not include the myriad of non-commercial, casual or other exchanges of information that occur in normal political or social discourse, even if there may be incidental restrictions on use of the information. These casual exchanges do not involve a contractual relationship. Thus, when a friend approaches another and offers to describe the marital problems of a third party if the other does not "tell anyone else," that exchange is not a license under this Act because it is not a contract and because it is not a computer information transaction.

39. "Licensor" and "Licensee." These definitions refer to the transferee and transferor in any contract covered by this Act, whether or not the contract is a license. In the frequent situation where each party supplies computer information to the other, each is a licensor as to the information it provides and a licensee as to the information it receives.

40. "Mass-market license" and "mass-market transaction." The term "mass market license" is a new term and the definition must be applied in light of its intended and limited function. That function is to describe small dollar value, routine and anonymous transactions involving information that is directed to the general public and the transaction occurs in a retail market available to and used by the general public. A purpose of the definition is to avoid artificial distinctions among business and consumer transferees in an ordinary retail market. The term includes all consumer contracts and some transactions between businesses in a retail market. It does not include ordinary commercial transactions between businesses using ordinary commercial methods of acquiring or transferring commercial information such as with purchase orders or on terms offered to businesses but not to consumers.

A "mass-market" transaction is characterized by 1) the market in which the transaction occurs, 2) the terms of the transaction, and 3) the nature of the information involved. The market is a retail market where information is made available in pre-packaged form under generally similar terms to the general public as a whole and in which the general public, including consumers, is a frequent participant. The prototypical retail market is a department store, grocery store, gas station, shopping center, or the like. These locations are open to, and in fact attract, the general public as a whole. They are characterized by the fact that, while retail merchants make transactions with other businesses, a predominant type of transaction involves consumers. In a retail market, most transactions involve relatively small quantities, non-negotiated terms, and transactions to an end user rather than a purchaser who plans to resell the acquired product. The products are available to anyone who enters the retail location and pays the stated price.

The computer information must be of a type aimed at the general public as a whole, including consumers. This does not include information products earmarked for a business or professional audience, a subgroup of the general public, members of an organization, or persons with a separate relationship to the information provider. In determining when the definition applies, courts should reflect the purpose of the definition which is to avoid artificial distinctions among business and consumer purchasers in an ordinary retail market. The transactions covered do not include specialty computer information for business or professional uses, information for specially targeted limited audiences, information distributed in non-retail transactions, or professional use information. The transactions involve computer information routinely acquired by consumers or that intends to appeal to a general public audience as a whole, including consumers. Generally, this is inconsistent with substantial customization of the information for a particular end user. Customization that is routine in mass markets or that is done by the licensee after acquiring the information does not take the information, and therefore the transaction, outside the concept of a mass-market transaction.

The transaction must be with an end user. An end user licensee is one that generally intends to use the information or the informational rights in its own internal business or personal affairs. An end user is not engaged in the business of reselling, distributing, or sub-licensing the information or rights to third parties, or in commercial public performances or displays of the information, or in otherwise making the information commercially available to third parties.

If the licensee is not a consumer, the terms and quantity in the transaction must be consistent with an ordinary transaction in the retail market. To provide further guidance, subsection (B)(iii) expressly excludes several types of transactions commonly not associated with routine retail transactions. The definition excludes a transaction for redistribution or for public display or performance of a copyrighted work. These are never a mass-market transaction because they involve no attributes of a retail market. In on-line contracting, consumer contracts are mass-market transactions, but business to business transactions are not. By excluding on-line transactions not involving a consumer, the definition follows an important principle. In the new on-line commerce, it is important not to regulate transactions beyond consumer issues. This gives commerce room to develop while preserving consumer interests.

41. "Merchant." This is from Uniform Commercial Code § 2-104 (1998 Official Text). The definition covers a person that holds itself out as experienced even if the person did not actually engage in prior transactions of the type involved. The term "merchant" has roots in the "law merchant" concept of a professional in business. This status may be based upon specialized knowledge as to the information, specialized knowledge about business practices, or specialized knowledge as to both. Which kind of specialized knowledge may be sufficient to establish merchant status is indicated by the nature of the provision in which the term is used. In this Act, the term refers primarily to businesses with general knowledge of business practices, rather than to experts in a specific field. Section 401(a) and (e), and Section 403, however, require a more focused expertise in the particular type of information involved.

The reference to attributing knowledge by the employment of an agent confirms that merchant status does not always depend on the principal’s knowledge. Similarly, an organization is charged with the expertise of its employees and even persons such as universities, for example, can come within the definition of merchant if they have regular purchasing departments or business personnel familiar with business practices.

42. "Non-exclusive license." In this type of license, the licensor does not foreclose itself from making additional licenses involving the same subject matter and scope. A non-exclusive license has been described as nothing more than a promise not to sue. While it often has more commercial aspects, a license does not convey property rights to the licensee.

43. "Notice." This is from Uniform Commercial Code § 1-201(25) (1998 Official Text). Notice exists when a person has knowledge or has received notification or has reason to know of a fact. When notice may cease to be effective is not covered by this Act, but is governed by other law.

44. "Notify", or "give notice". This is from Uniform Commercial Code § 1-201(26) (1998 Official Text). This term is used when the essential event is the dispatch of the notice, not its receipt. When receipt is the relevant standard, that is stated in the statute.

45. "Party." This is from Uniform Commercial Code § 1-201(29) (1998 Official Text). Reference to a "party" includes a person acting through an agent.

46. "Person." This term refers to individuals (human beings) and to business or other organizations , whether or not treated in law as formal entities. It is distinguished from the narrower term, "individual", which as used in this Act ,refers to a natural human being, whether acting in a representative capacity or solely on it’s the individual’s own behalf.

47. "Published informational content." This type of information is the most closely associated with free expression. In previous technology, this would be newspapers, books, records and the like (which are outside the scope of this Act). For purposes of the scope of this Act, the term applies to computer information. The information must be informational content, that is, intended to communicate to a human being, rather than simply to operate a machine. Informational content is published content within this definition when created for or distributed to a group of recipients as a whole in generally the same form. The term includes interactive content and content made publicly available in a database, even if only portions are used by individual recipients who, for example, may search the database using a computer programs, since the information is generally available and the end user selects from the available information. That is like the reader of a newspaper who reads part, but not all, of the newspaper. The term also includes the informational product of automated systems that affirmatively supply selected portions of a larger database to individual licensees based on programmed parameters.

The term does not include informational content tailored by individuals (human beings) acting on behalf of the licensor to meet a specific recipient’s needs or to information provided in a special relationship of reliance. The phrase "special relationship of reliance" refers to transactions in which the provider knows that a particular licensee plans to rely on particular data that the licensor provides and that the licensee expects that the licensor will tailor the information to the client’s business or personal needs. The relationship arises only with respect to licensors who possess unique or specialized expertise or who are in a special position of confidence and trust with the licensee such that reliance is justified and the party has a duty to act with care. In a special relationship of reliance the information provider is specifically aware of and personally tailors information to the needs of the particular licensee as an integral part of the provider’s primary business of providing such content. A reliance relationship does not arise for information made generally available to a group in standard form even if those who receive the information subscribe to the information service because they believe it relevant to their commercial or personal needs.

48. "Receive." This definition distinguishes between performances and notices. As to performances, it corresponds to Uniform Commercial Code § 2-103 (1998 Official Text). With respect to notices, "receive" includes circumstances in which a message is delivered to a place designated by the recipient even if that place is under the control of a third party. Arrival at a private post office box is receipt by the addressee even though the addressee may not remove or otherwise obtain the message until later. Similarly, receipt of a message at an electronic mail address, even though on a third party system, constitutes receipt as to the ultimate addressee, if that electronic mail address was held out as a place for receipt of such messages. The definition is met only if the person holds out a location or system as a place for receiving notices of a kind and the message is in fact of that kind. Outside of electronic commerce, parties frequently require that notice be delivered or sent to a particular address or person. The same is true in electronic commerce. If parties agree to send notice of default or of a change in terms to a particular e-mail address, receipt at that location suffices, but delivery to a general e-mail address does not. In all cases, the message must be capable of being processed. This refers to processing in the type of system in its general, reasonably expected configuration and not to the details of an atypical configuration known or knowable only to the party operating the system. The message must be capable of interacting with an ordinary system of the particular type. Whether the message actually is processed is not relevant to receipt; similarly, if a letter is placed in a party’s post office box it is received.

49. "Record." A record must be in, or capable of being retrieved in, perceivable form. Electronic text recorded in a computer memory that could be printed or displayed from that memory constitutes a record. Similarly, a tape recording of an oral conversation or a video taping of actions could be a record.

50. "Release." A release is a waiver or permission not accompanied by other commercial attributes, such as an on-going obligation to pay or an obligation to provide the means to implement use of the information. A release is a form of a license. The term is used in this Act to identify a class of transactions in which the sole purpose of the agreement is to permit use and which agreements are often made on a less formal basis than a typical commercial license.

51. "Return." "Return" refers to acts restoring a party to its initial position if the party has rejected a contract contained in a record made available to it after the party committed to, or completed, an obligation to pay or deliver and, as a result of rejecting the contract, the transaction will not be carried forward. A return requires re-delivery to the licensor or its agent of information already delivered that would have been covered by the rejected record. When the licensee is the party who rejects the contract, "return" consists of a reimbursement of fees paid on re-delivery of all copies of the information and documentation. In both cases, the information and documentation must be re-delivered in their original condition. Of course, by consent or by agreement the copies can be destroyed in accordance with instructions.

Return is not a remedy for breach. It is a right that arises under this Act or by agreement if a party refuses a proffered contract and it has previously committed to, or paid the contract fee. Making a return available in such cases allows the party a meaningful opportunity to decide to accept or reject that contract. Section 112. The right to return expires if the party assents to the license. Of course, if a party accepts a contract but the information is defective, the aggrieved party may have a right to reject the product and obtain restitution of the contract fee.

Return must be sought within a reasonable time. What constitutes a reasonable time depends on the contract or, if the contract is silent, the facts and circumstances of the commercial context. Section 114.

The definition deals with the difficult problem of administering a return right in "bundled" information products (products that include separate items of information transferred as a whole for a single fee). Pricing in bundled transactions is not based on a mere sum of the fees required for each product in an unbundled setting and, often, include information products that are provided for no charge, even though the information may have a discernible price in other transactions. If the products are separately priced, a return is for the contract fee for the item in question. Otherwise, return must be of the entire bundled product and reimbursement of the entire price, if any is attributed to the bundled software. For the former, the price must be separately stated in the sense that the agreement identified an amount for the particular information. A court cannot unbundle the products and estimate appropriate pricing in what is often a complex distribution arrangement premised on the bundling of multiple products.

52. "Scope." This term refers to contract terms that define the central elements of a license relating to aspects of use of the information. Scope provisions in a license define the product. In sales or leases of goods, products are self-defining: an offered car is either a Ford or Chevrolet, it is not necessary to read a contract to determine that. That is not the case in computer information. The same information has entirely different commercial characteristics depending on the scope of rights granted. For example, a license that allows use of a word processing program in a single computer is not the same product (even though the copy of the information may be exactly the same) as a license to make and distribute copies of that word processing software throughout a region. Further, neither license is the same as a license that transfers the a copy under a license to use it for three days at home. They are all different even though the software is identical, and in each case the differences can only be determined by reading the license.

53. "Send." This definition adapts Uniform Commercial Code § 1-201(38)(1998 Official Text) to cover electronic notices. In modern technology sending a message does not require that the information move from one location to another. Electronic transfers often involve initiating processes that copy the information into another location or make it available in a system shared or accessible by the recipient and the person or electronic agent creating the message. The message must be capable of being processed by the type of system involved. This refers to the type of system in its general, reasonably expected configuration and not to the details of an atypical system configuration. Of course, if the sender has knowledge of the details of the actual system to which it is sending the message, its actions may need to take that knowledge into account. Use of the phrase "in addition" makes it clear that the electronic sending must also comply with relevant criteria for other media, such as in use of a commercially reasonable carrier. Finally, the message or item sent must be directed to a location or system that is held out as a place for receiving communications of that kind.

54. "Standard form." The definition refers to forms, not standard terms. A form consists of record containing a group of terms prepared for frequent use as a group. The definition does not cover a tailored contract comprised of "terms" selected from multiple prior agreements. The form must have been actually used without negotiation other than of the ordinarily tailored terms noted in the definition. If a standard form is offered but then negotiated or changed other than with respect to those ordinarily tailored terms, the resulting record of the contract is not a standard form.

55. "Term." This is from Uniform Commercial Code § 1-201(42) (1998 Official Text). The word refers to a discernible element of an agreement. The word "clause" has the same meaning in reference to an agreement.

56. "Termination." This is from Uniform Commercial Code § 2-106 (1998 Official Text). The effect of terminating a contract is discussed in Sections 616-618.

57. "Transfer." This word is used with respect to conveyances of contractual interests and refers to actual transfers of a contractual interest, as contrasted to agreements that merely employ another person to act on behalf of the transferor under a delegation or sublicense. Some of these transfers might be described as an assignment of the contract.

58. "Usage of trade." This is from Uniform Commercial Code § 1-205 (1998 Official Text). This Act treats usage of trade as a factor in determining the commercial meaning of the agreement. The language used in a contract is interpreted as meaning what it may fairly be expected to mean to parties involved in the particular commercial transaction in a given locality or in a given vocation or trade. This Act rejects cases which see evidence of "custom" as representing an effort to displace or negate "established rule of law." A usage of trade must have the "regularity of observance" indicated in the text. It is not required that a usage of trade be "ancient or immemorial", "universal" or the like. Under this definition, full recognition is thus available for new usages and for usages currently observed by the majority of merchants, even though some do not. There is room also for appropriate recognition of usage agreed by merchants in trade codes.

59. Subsection b. Contains references to a variety of provisions of the Uniform Commercial Code which contain definitions of additional terms used in this Act. Unless otherwise expressly indicated, the reference is to the Official Texts of the respective provisions as of the end of 1998.

Definitional Cross References. Section 102: "Agreement"; "Consumer"; "Computer"; "Computer information"; "Computer information transaction"; "Consumer"; "Copy"; "Electronic"; "Financial services transaction"; "Good faith"; "Goods"; "Information"; "License"; "Mass-market transaction"; "Party".

1. General Structure. This section states the scope of coverage of this Act. Subsection (a) outlines the affirmative scope. Subsections (b) and (c) establish rules for transactions where more than one subject matter is involved. Subsection (d) sets forth exclusions from the Act. Subsection (e) defines "enhanced sound recording," a term used in subsection (d).

2. Transactions in Computer Information. This Act concerns contracts and not property rights. "Computer information transactions" are agreements that deal with the creation, modification access to, or distribution of computer information. Section 102(a)(11).

As stated in subsections (b) and (c), with limited exceptions, if a transaction is a computer information transaction but also involves other subject matter, this Act ordinarily applies only to the aspects of the transaction that involve "computer information." "Computer information" is information that is in a form directly capable of being processed by, or obtained from, a computer and any copy, associated documentation or packaging. Section 102(a)(10). Agreements can pertain to informational rights in computer information and this Act governs those contracts but does not create property rights. For example, subsection (b)(2) concerns transactions where computer information or informational rights are involved but are not the primary subject matter of the transaction. In such a case, this Act merely covers the part of the transaction involving contract issues pertaining to the computer information or rights, including all matters that can be addressed by contract and the contract’s performance and enforcement, but does not pertain to the creation of property rights.

In transactions in computer information, the transferee seeks the information and contractual rights to use it. Unlike a buyer of goods, the purchaser (e.g., buyer, lessee, or licensee) of computer information has little interest in the original diskette or tape unless the information remains on that media and nowhere else. In online use and distribution, there may be no tangible media involved at all.

The scope of this Act turns initially on the definition of "computer information transaction." The mere fact that communications about a transaction are sent or recorded in digital form does not place it within this Act. Thus, a contract for airplane transportation is not a computer information transaction even though the ticket is in digital form. The subject matter is not the computer information, but the service – air transportation from one location to another. A contract to create and publish a print book is not a computer information transaction even though the author chooses or is required to deliver the work product in on a computer diskette. Similarly, an insurance policy prepared in digital form is not a computer information transaction; it is a contract for insurance coverage whose terms are evidenced in digital form. A contract for a digital signature certificate is a contract for certification or identification services, not a contract whose subject matter is the computer information. This Act does not apply to the many cases in which a person provides information to another person for purposes of another transaction such as making an employment or loan application.

a. Contracts to Create or Develop Computer Information. This Act applies to contracts to develop or create software and other computer information, such as a computer database. Section 102(a)(11). Except as excluded in subsection (d), the Act covers all transactions involving independent contractors, thus resolving conflicts in prior case law. The Act does not cover contracts to develop or create motion pictures, sound recordings, or broadcast programs. These are excluded by subsection (d).

b. Computer Programs. This Act applies to transactions involving the distribution of, or grant of a right to use, a computer program. Section 102(a)(11). These transactions are covered whether they involve a license or a sale of a copy. The difference between a license and an unrestricted sale of a copy, however, is relevant; as reflected in various provisions of this Act, a license may involve either a more substantial retention of rights by the licensor, or a greater transfer of rights, than in a sale. Most provisions of this Act apply to unrestricted sales and licenses, but others are limited to licenses. The coverage of each section in this regard is explicit in the section.

c. Access and Internet Contracts. This Act covers agreements involving access to or information from a computer system. Section 102(a)(39). This includes Internet and similar systems for access to or use of computer information. The Act, however, does not cover broadcast or similar distribution of programming, or distribution of digital motion pictures, sound recordings or the like and should not be applied by analogy to such transactions. Section 103(d).

d. Digital Multimedia Works. This Act applies to agreements for the creation and distribution of digital multimedia works. Section 102(a)(11). Multimedia products are those which, through digital technology, involve an integration of multiple forms of authorship and multiple types of information into an integrated, often interactive work. Interactivity is a characteristic of software-based products. For a discussion of what a multimedia work is, see Copyright Office Circular (Multimedia Circular).

e. Data processing Contracts. This Act covers contracts for data processing or data analysis of computer information. Section 102(a)(39).

3. Transactions outside the Act. The scope of this Act is limited by the affirmative definitions of "computer information" and "computer information transaction," which exclude print and various other forms of information distribution, as well as by the exclusions stated in subsection (d). As a result, the Act leaves unaffected all transactions in the traditional core businesses of non-digital information industries (e.g., print, motion picture, broadcast, sound recordings). Whether a magazine (book or newspaper) publisher can contractually limit use of the information by purchasers of copies and what contract liability applies to print works is outside this Act, as are the following:

• Sales or leases of goods
• Services contracts (except computer information development and support agreements)
• Casual exchanges of information
• Contracts where computer information is not required
• Employment contracts
• Contracts where computer information is insignificant (de minimus)
• Computers, televisions, VCR’s, DVD players, or similar goods
• Print books, magazines, or newspapers
• Motion pictures, sound recordings, musical works
• Broadcast or cable programs.

This Act does not apply to "information," but to contract transactions (agreements regarding information).

4. Mixed Transactions. A computer information transaction may involve computer information and other subject matter and thus present a question of whether all or any part of the transaction is governed by this Act, common law, or an article of the Uniform Commercial Code (U.C.C.) such as Article 2 and 2A. In modern commerce, most contracts are governed by multiple sources of contract law. The consequences of a contract to produce a motion picture or distribute it are governed by Article 2, the common law of services, common law relating to information, federal and state labor law, copyright and other intellectual property law. A sale of a toaster is governed by Article 2, common law, consumer law, and various federal regulations.

This Act does not create "mixed contracts." Since virtually all contracts of all types involve "mixed" law, the issue is not whether multiple sources of contract law apply, but to what extent this Act applies in lieu of another law. Subsections (b) and (c) tailor the answer to the issue presented, the type of transaction, and the applicable commercial policies. The primary distinction is between cases where the other subject matter is governed by articles of the Uniform Commercial Code (U.C.C.) and cases involving subject matter not governed by the U.C.C.

a. Computer Information and U.C.C. Subject Matter. Where a transaction includes computer information and subject matter governed by an article of the U.C.C., the policy expressed in this Act is that, in the absence of contrary agreement, the codified rules of the U.C.C. should apply to its subject matter and this Act should apply to its subject matter. That principle is express in subsection (d)(6). Thus, U.C.C. Article 8, and not this Act, deals with investment securities and rights or remedies with respect to them. The same applies for Articles 4 and 4A: payment systems, checks, and funds transfers. Similarly, subsection (c) indicates that if a provision of U.C.C. Article 9 conflicts with this Act, Article 9 controls.

The primary context in which this issue arises involves transactions that include goods, as defined for Article 2 and 2A, and computer information. "Goods" is defined Section 102(b). Generally there is no overlap since computer information and informational rights are not goods. See, e.g., United States v. Stafford, -- F.3d --, 1998 U.S. App. Lexis 1794 (7^th Cir. 1998). If there is a diskette, it is a tangible object but the information on the diskette is not a good just as the information in a book is not goods or governed by the law of goods laws even if the binding is. This Act includes the media in which computer information is fixed within the definition of computer information, and thereby avoids any conflict with U.C.C. Article 2.

When a transaction involves goods and computer information (e.g., acquisition of a computer and software), in most cases Article 2 applies to the goods, but this Act applies to the computer information. Section 103(b)(1) expresses that rule. Some courts describe this rule as the "gravamen of the action" standard. Law applicable to any part of a transaction depends on whether the disputed issue pertains to the goods or to the computer information. Each governs its own subject matter.

As noted, there are two exceptions. First, the media (e.g., tape, diskette) that is the carrier of the computer information is within this Act. This Act applies to the copy, documentation, and packaging of the computer information; indeed, these are within the definition of computer information itself. See Section 102. They are mere incidents of the transfer of the computer information.

Second, in some cases, a computer program is embedded in and sold or leased as part of goods, such as a computer program that controls timing in a car. These cases may support a narrow exception to the gravamen of the action test. Subsection (b)(1) outlines how courts should approach cases where a computer program is embedded in and inseparable from goods that are sold or leased as goods. The approach to this issue in Uniform Commercial Code Article 9 (1998 Official Text) deals with applicability of creating and perfecting security interests under that statute and is not adopted here. The rules here center on the importance of the program and access to it in the transaction.

First: This Act applies to the computer program and the copy of it if the good in which the copy is embedded is a computer or a computer peripheral. The computer or peripheral often cannot function without the computer information (computer program). The computer information itself is important to the transaction and a commercial choice to distribute the program in embedded form, rather than in a form that requires loading into the computer or peripheral does not change the applicability of this Act. For example, the software for a medical imaging system that relies largely on software capabilities would be within this Act, whether the software is embedded in the system or loaded into it after purchase. Of course, this rule does not mean that this Act applies to the computer itself this Act only to the programs embedded in the computer or peripheral

Second: In other cases where a copy of a computer program is sold or leased as part of goods, this Act applies to the program and the copy of it if giving the buyer or lessee of the goods access to or use of the program is ordinarily a "material purpose" of this type of transaction. This looks at materiality in an objective sense, centered on transactions of the type, rather than the subjective goals or intent of the particular parties. Materiality focuses on the particular good in which the program is embedded, rather than the overall transaction as a whole. The test deals with ordinary "transactions in goods of the type." Thus, the fact that a particular program automated system is a small part of a transaction involving many other assets does not take it out of this Act if, as to that particular system, access to the program is a material aspect of the deal.

In determining whether using the program is a material purpose in obtaining the goods, courts should examine the overall context. Factors suggesting that access to or use of the program is material include the extent to which the program’s capabilities is the dominant appeal of the product, the extent to which negotiation focused on that capability, and the extent to which the agreement makes the program a separate focus for agreed terms. Materiality is ordinarily clear if the program is separately licensed as part of the transaction. On the other hand, the fact that ordinary functions of ordinary goods may rely on a program embedded in the goods does not indicate that program is governed by this Act. Thus, some functions of an automobile sold at retail may be operated by embedded programs; if the automobile’s functionality rather than the program that operates the brakes is the purpose of the transaction, this Act would not apply. On the other hand, upstream contracts to develop or supply the program to the manufacturer are within this Act. Separately licensed programs for a digital camera that enable the camera to link to a computer are within the Act.

b. Computer Information and Subject Matter not Within U.C.C. If a computer information transaction also involves other subject matter and that other subject matter is not governed by the U.C.C., subsection (b)(2) states how to determine the extent of applicability of this Act. The basic rule is that this Act applies to aspects of the agreement concerning the computer information and informational rights but not to aspects involving the other subject matter unless, pursuant to subsection (b)(2), this Act applies because the computer information is the primary purpose of the agreement. In applying this rule, it is appropriate for courts to recognize that, unless the computer information is the primary purpose of the deal, the other subject matter will be covered by common law or other law, rather than a uniform statute.

Under subsection (b)(2) (in cases not involving U.C.C. subject matter), if computer information or informational rights is the primary purpose of a transaction, this Act applies to the entire transaction except subject matter excluded by subsection (d). Otherwise, under subsection (b)(2) this Act applies only to the contract issues pertaining to the aspect of the transaction involving computer information or rights.

Variations of this test have been used for years in cases involving a combination of goods and services. The test asks a court to consider whether the computer information or other subject matter (e.g., services) is the main focus. In doing so, the court should consider the type of transaction envisioned by the parties. While cases under Article 2 provide guidance on answering this kind of questions, it is appropriate to consider additional factors when this Act is contrasted to common law. Courts should consider the extent to which the transaction as a whole corresponds to the framework involved in computer information transactions, such as: 1) the nature of any underlying intellectual property rights involved, including differences in the rights provided for different types of works, 2) the extent to which regulatory rules outside this Act apply to the other subject matter, 3) the extent to which clear allocation of liability risk is a concern, and 4) the extent to which coverage by this Act of the other subject matter in the transaction will correspond to reasonable expectations of the parties as to how the legal issues should be handled.

The same test applies at various levels of use or distribution, but the results may differ at each level. For example, a courier company that licenses communications software from a software publisher is engaged in an transaction entirely within this Act. The subject matter is a license of software. If the courier company provides the software to customers to access data on the location of their packages, the primary purpose may have to do with the services the courier provides. Even then, however, if the software publisher enters into a license with the end user, as between the publisher and the end user, the license which is within this Act is the primary purpose of that agreement.

The statutory test in subsection (b)(2) applies only if the transaction is not entirely excluded under subsection (d). This means that the computer information is more than de minimus and not involved simply as a method of communicating about the contract.

The rules of subsection (b) do not apply if the agreement specifies what law governs. See Section 104. If the parties elect coverage under this Act, that agreement generally governs as would an agreement that this Act should not apply at all. Agreement here, as elsewhere, can be found in the express terms of the contract as well as in the usage of trade or course of dealing between the parties, or as inferred from the commercial circumstances of the contracting.

5. Exclusions. Subsection (d) states several exclusions from this Act. They are based on a judgment that rules in this Act should not apply to the excluded subject matter unless the parties so agree , because the excluded transactions are different in type. Ordinarily, a court should not apply this Act by analogy to excluded subject matter, but should refer to other law such as Article 2 or Article 2A of the Uniform Commercial Code or the common law.

a. Core Financial Functions. Subsection (d)(1) excludes core banking, payment and financial services activities. These are regulated by federal and state law and are largely within the scope of the U.C.C. The term, "financial services transaction" is defined in Section 102. This is an "activity" exclusion not an "entity" exclusion.. Regulations, such as federal Regulation E on funds transfer, do not apply solely to banks, but to any holder of a qualifying account. To the extent that non-banks engage in the activities indicated in the exclusion, those activities are also excluded from this Act (whether conducted by a bank or a non-bank). On the other hand, banks engage in many activities identical to computer information transaction and these transactions, when not covered by this exclusion, are within this Act. Examples could be contracts involving on-line shopping and database access.

b. Core Entertainment and Broadcast. Subsection (d)(2) excludes agreements relating to motion pictures, musical works, sound recordings, enhanced sound recordings, and broadcast and cable programming. The exclusion covers the traditional core activities of these industries or, in the case of enhanced sound recordings, a slightly enhanced version of a traditional activity. It is intended to be comprehensive as to those core activities and reflects the existence of a regulatory overlay for some (cable and broadcast) and the different nature of transactional issues as contrasted to computer information industries. The exclusion of agreements pertaining to motion pictures, sound recordings, and the listed broadcast or cable activities leaves liability, contract formation, and other issues to general law, including Article 2 or Article 2A of the Uniform Commercial Code, as applicable. Because these transactions differ from those within this Act, this Act should not be applied by analogy to transactions in these areas of practice.

The terms "motion picture", "sound recording", "musical work", and "phonorecord" have the meanings associated with those terms in the Copyright Act as of the indicated date. The exclusion includes creation or distribution of these works in digital form. The Copyright Act and the registration system it enacts makes distinctions among and between various types of works, such as audiovisual works, literary works, computer programs, motion pictures, and sound recordings. These distinctions are followed here. The exclusion additionally employs a new term, "enhanced sound recording", to cover digital products that have elements slightly beyond ordinary sound recordings (e.g., a program to allow use of the work), but which do not change the fundamental nature of the work as a sound recording.

"Motion picture" includes motion pictures regardless of how distributed, even in digital form. These products are not governed by this Act and either Article 2 or Article 2A, along with common law, apply. For purposes of this Act, the term "motion picture" does not include an interactive computer game, multimedia product, or similar work, nor does it include audio visual effects included in such interactive works. The term refers to the work as a whole and not images or visual motion within another work or within software, such as the animated help feature of a word processing program or images or motion in an interactive computer encyclopedia.

Subsection (d)(2) excludes contracts for audio and visual programming distributed by broadcast, cable, or satellite regardless of whether transmitted in digital or another form, including transmissions analogous to broadcast made through the Internet. The federal Communications Act and associated regulations define the terms associated with this exclusion and the intent is to adopt that terminology as of the indicated date.

c. Compulsory Licenses. Subsection (d)(3) excludes compulsory licenses, such as that provided under the Copyright Act. These transactions, as the term implies, are not voluntary contractual relationships and the contract choice principles which underlie this Act are not appropriate.

d. Employment Contracts. This Act does not deal with employee contracts. A vast network of labor law and other regulatory rules apply to the relationship between an employee and employer and the intent in this Act is to leave that existing law unchanged.

e. Voluntary Use of Computer Information. Under Subsection (d)(5) an agreement is not within brought into this Act merely because one party elects to use computer information to transmit information to the other, when not required to do so. For example, an author that contracts to submit an article to a publisher for publication in a print journal and elects to send the submission by E-mail does not thereby bring the contract into this Act. A developer required to deliver information in a form other than as computer information, does not bring the transaction within this Act merely by electing to develop the product using digital systems.

f. Form is Insignificant. This Act generally applies a gravamen of the action approach for when this Act applies to its subject matter and other law governs other subject matter in one transaction. However, there may be cases in which the form of the information as computer information is such a minor part of the transaction that the Act should not apply. Subsection (d)(5) provides a court with the basis to reach this judgment if the form of the information as computer information is insignificant (de minimis) to the deal. This is a narrow exception to the general rule, applicable where the form of the information as computer information is a trivial part of the relationship. This exception does not ask a court to contract the allocated cost of the computer information to the overall cost of the transaction. What must be insignificant is the fact that the information is provided in the form of computer information. If it could not be provided in any other way and still fulfill its role in the transaction, as where the computer information is an operating computer program system, its form can never be insignificant.

Definitional Cross-References: Section 102: "Agreement"; "Computer"; "Computer Information"; "Computer program"; "Conspicuous"; "Copy"; "Good faith"; "Goods"; "Information"; "Informational rights"; "Mass-market transaction"; "Party".

1. Scope of Section. This section adopts the basic rule that, generally, parties can agree to have this Act apply to an entire transaction, part of a transaction, or none of it. This rule, of course, deals with applicability of this Act and not other law, including law that supplements this Act.

2. General Rule. This section expressly acknowledges a contractual capability that has been assumed to exist under general law. The capability to opt into or out of a contract statute is important in this Act because the narrow scope of this Act may create uncertainty or differences in coverage that the parties should be able to avoid by agreement.

Under this section, parties can agree to apply or to bar application of this Act if a material part of the transaction involves computer information or subject matter excluded under Section 103 (d)(1) or (d)(2). The materiality requirement should be liberally construed to enable agreements. It does not establish a standard relating solely to relative cost or value or a standard that asks a court to determine what is the most significant or primary part of a transaction, but merely whether the computer information or otherwise excluded information has some significance to the transaction. Materiality is not met if the computer information is a trivial or otherwise insignificant aspect of the transaction. Failure to meet the materiality requirement does not preclude an agreement being enforceable under other law, but any agreement to opt-in or opt-out is governed by the limitations stated in subsections (1) to (5). Failure to meet the materiality standard does not it indicate that parties cannot otherwise alter the effect of any contract rule under this Act or other law by agreement, if the rule is variable by agreement.

In determining whether an enforceable agreement was formed, a court should apply the contract formation rules of this Act since a material part of the agreement involves computer information. Agreement can be found in the express terms of the contract, in course of dealing, usage of trade, or as inferred from the circumstances. In a mass-market transaction, a term of an agreement to opt-in or to opt-out of the Act under subsection (3) must be conspicuous.

3. Limitations on Right. Subsections (1) through (5) place limitations on an agreement to opt into or out of this Act.

a. Opt-In Agreements: General. Subsection (1) deals with agreements that provide that this Act governs aspects of a transaction to which it would not otherwise apply ("opt-in agreements"). It confirms the applicability of any rules in other law that reflect a policy that the effect of the rule cannot be varied by agreement or that restrict what procedure must be used to vary the rule. Of course, for this limitation to apply, the non-variable rule must be applicable to the transaction in the absence of the opt-in agreement.

In addition, an agreement to opt-in to this Act cannot alter the effect of otherwise applicable consumer protection statutes or of a law dealing with rights in a copy of printed information (e.g., a book on paper) distributed in the mass market. In each of case, the policy is that the idea of contract choice should not apply in the face of important, expressed policies of the state. A consumer protection statute is a provision of a statute that applies specifically to consumers and creates a more protective rule for the consumer than for other parties in similar transactions.

b. Opt-In Agreements: Embedded Programs. Subsection (4) follows the exclusion stated in Section 103 for some computer programs embedded in goods. If a computer program is excluded from coverage of this Act the parties cannot use the program to bring the goods in which the program is embedded into the Act. Thus, under Section 103(b), this Act does not apply to a car or to a copy of a computer program regulating the brakes of the car and sold or leased as part of the car. With respect to the car and program, the parties could not opt into this Act. The result would be different if the embedded program is within this Act under Section 103.

c. U.C.C. Rules. Under subsection (5) an agreement to opt-in to this Act cannot alter rules stated in the indicated articles of the Uniform Commercial Code. This refers to rules specifically dealt with in those parts of the Commercial Code, not the general subject matter of the UCC. The agreement can, for example, affect contract formation and other principles to the extent not dealt with by specific rules in those articles.

d. Opt-out Agreements. Subsection (2) concerns agreements to opt-out of coverage by this Act. An agreement to opt-out places the transaction within other contract law as to the portion of the transaction to which this Act would otherwise apply. Recognizing this, subsection (2) places only limited restrictions on what aspect of this Act can be altered by virtue of that type of agreement.

4. Other Limitations. In addition to the limitations stated in this section, an agreement to opt in or opt out of coverage by this Act is governed by general standards of unconscionability and good faith.

Uniform Law Source: Uniform Commercial Code §§ 9-104(1)(a); 2A-104(1) (1998 Official Text)

Definitional Cross References: Section 102: "Agreement"; "Authenticate"; "Conspicuous"; "Consumer"; "Contract"; "Electronic"; "Information"; "Informational Rights"; "Record"; "Term".

1. General Principle and Scope of the Section. Subsections (a) and (b) clarify that this Act does not alter intellectual property or other fundamental information laws. Subsection (c) states a similar principle for consumer protection statutes subject to the narrow electronic commerce rules in subsection (d).

The transition from print to digital media created new demands for information. Because digital information is so easily copied, increased attention has been focused on the formulation of rights in information in order to encourage its creation and on the development of contracting methods that enable effective development and efficient marketing of information assets. Here, as in other parts of the economy, the fundamental policy of contract law is to enforce contractual agreements. At the same time, there remains a fundamental public interest in assuring that information in the public domain is free for all to use from the public domain and in providing access to information for public purposes such as education, research, and fair comment. While the digital environment increases the risk of unfair copying, the enforcement of contracts that permit owners to limit use of information and the development of technological self-help measures have given the owner of information considerable means of enforcing exclusivity in the information they produce or collect. This is true not only against those in contractual privity with the owner, but also in some contexts against the world-at-large.

The effort to balance the rights of owners of information against the claims of those who want access is very complex and has been the subject of considerable controversy and negotiation at both the federal level and internationally. The extent to which the resolution of these issues at the federal level ought to preempt state law is beyond the scope of this Act, the central purpose of which is to facilitate private transactions in information. Moreover, it is clear that limitations on the information rights of owners that may be imposed in a copyright regime where rights are conferred that bind third parties, may be inappropriate in a contractual setting where courts should be reluctant to set aside terms of a contract. Subsections (a) and (b) strike the balance between fundamental interests in contract freedom and fundamental public policies such as those regarding innovation, competition, and free expression. The use of these general principles will enable the courts to react to changing practices and technology, while specific prohibitions would lack flexibility and would inevitably fail to cover all relevant contingencies.

2. Federal Law: Preemption. Subsection (a) restates a rule that would apply in any event. If federal law invalidates a state contract law or contract term in a particular setting, federal law controls. See, e.g., Everex Systems, Inc. v. Cadtrak Corp., 89 F.3d 673 (9^th Cir. 1996) (patent license not transferable); Harris v. Emus Records Corp., 734 F.2d 1329 (9th Cir. 1984) (copyright license not transferable); Rano v. Sipa Press, Inc., 987 F2d 580 (9th Cir. 1993) (copyright preempts rule on licenses terminable at will); SOS, Inc. v. Payday, Inc., 886 F.2d 1084 (9^th Cir. 1989) (federal policy controls over state contract law interpretation rules; interpretation must protect the rights-holder). Subsection (a) refers to preemptive federal rules, but other doctrines grounded in First Amendment, copyright misuse and other federal law may preempt enforcement of some contract terms in some cases. In general, however, except for rules that directly regulate specific contract terms, no general preemption of contracting arises under copyright or patent law. See National Car Rental System, Inc. v. Computer Associates Int'l, Inc., 991 F2d 426 (8th Cir. 1993); ProCD Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996). No effort is made in this Act to define whether or to what extent such a preemption may arise.

3. Public Policy Invalidation. Contract terms may be unenforceable because of federal preemption under subsection (a) of this section or because the term is unconscionable under section 111. In addition, subsection (b) acknowledges the general legal principle that, in certain limited circumstances, terms may be unenforceable because they violate a fundamental public policy that clearly overrides the policy favoring enforcement of private transactions as between the parties. The principle that courts may invalidate a term of a contract on public policy grounds is recognized at common law and in the Restatement (Second) of Contracts § 178 et. seq. It is a supplementary legal principle incorporated under Section 1-103 and applies to all contract law and all articles of this Code. Subsection (b) is designed to clarify the nature of the policies that have particular relevance to the subject matter governed by this Act.

Fundamental state policies are most commonly stated by the legislature. In the absence of a legislative declaration of a particular policy, courts should be reluctant to override a contract term. In evaluating a claim that a term violates this subsection, courts should consider a variety of factors including the extent to which enforcement or invalidation of the term will adversely affect the interests of each party to the transaction or the public, the interest in protecting expectations arising from the contract, the purpose of the challenged term, the extent to which enforcement or invalidation will adversely affect other fundamental public interests, the strength and consistency of judicial decisions applying similar policies in similar contexts, the nature of any express legislative or regulatory policies, and the values of certainty of enforcement and uniformity in interpreting contractual provisions. Where the parties have negotiated terms of their agreement courts will be even more reluctant to set aside terms of the contract. In light of the national and international integration of the digital environment, courts should be reluctant to invalidate terms based on purely local policies. In applying these , courts should consider the position taken in the Restatement (Second) of Contracts § 178, comment b ("In doubtful cases … a decision as to enforceability is reached only after a careful balancing, in light of the circumstances, of the interests in the enforcement of the particular promise against the policy against the enforcement of such terms. … Enforcement will be denied only if the factors that argue against enforcement clearly outweigh the law’s traditional interest in protecting the expectations of the parties, its abhorrence of any unjust enrichment, and any public interest in enforcement of the particular term.").

The public policies most likely to be applicable to transactions within this Act are those relating to innovation, competition, and fair comment. Innovation policy recognizes the need for a balance between conferring property interests in information in order to create incentives for creation and the importance of a rich public domain upon which most innovation ultimately depends. Competition policy prevents unreasonable restraints on publicly available information in order to protect competition. Rights of free expression may include the right of persons to comment, whether positively or negatively, on the character or quality of information in the marketplace.

In practice, enforcing private contracts is most often consistent with these policies, largely because contracts reflect a purchased allocation of risks and benefits and define the commercial marketplace in which much information is disseminated and acquired. Thus, a wide variety of contract terms restricting the use of information by one of the contracting parties present no significant concerns. For example, contract restrictions on libelous or obscene language in an on-line chat room promote interests in free expression and association and such restrictions are enforced to a much broader degree arising out of contractual arrangements than if imposed by governmental regulation. However, there remains the possibility that contractual terms, particularly those arising from a context without negotiation may be impermissible if they violate fundamental public policy.

Contracting parties may have greater freedom contractually to restrict the use of confidential information than information that is otherwise publicly available. While a term that prohibits a person from criticizing the quality of software may raise public policy concerns if included in a shrink-wrap license for software distributed in the mass-market, a similar provision included in an agreement between a developer and a company applicable to experimental or early version software not yet perfected for the marketplace would not raise similar concerns. Trade secret law allows information to be transferred subject to considerable contractual limitations on disclosure which facilitates the exploitation and commercial application of new technology. On the other hand, trade secret law does not prohibit reverse engineering of lawfully acquired goods available on the open market. Striking the appropriate balance depends on a variety of contextual factors that can only be assessed on a case-by-case basis with an eye to national policies.

A term or contract that results from an agreement between commercial parties should be presumed to be valid and a heavy burden of proof should be imposed on the party seeking to escape the terms of the agreement under subsection (b). This Act and general contract law recognizes the commercial necessity of also enforcing mass market transactions that involve the use of standard form agreements. The terms of such forms may not be available to the licensee prior to the payment of the price and typically are not subject to affirmative negotiations. In such circumstances, courts must be more vigilant in assuring that limitations on use of the informational subject matter of the license are not invalid under fundamental public policy.

Under the general principle in subsection (b), courts also may look to federal copyright and patent laws for guidance on what types of limitations on the rights of owners of information ordinarily seem appropriate, recognizing, however, that private parties ordinarily have sound commercial reasons for contracting for limitations on use and that enforcing private ordering arrangements in itself reflects a fundamental public policy enacted throughout the Uniform Commercial Code and common law.

With reference to contract law policies that regulate the bargain of the parties, this Act makes express public policy choices. Contract law issues such as contract formation, creation and disclaimer of warranties, measuring and limiting damages, basic contractual obligations, contractual background rules, the effect of contractual choice, risk of loss, and the like, including the right of parties to alter the effect of the terms of this Act by their agreement should not be invalidated under subsection (b) of this section. This subsection deals with policies that implicate the broader public interest and the balance between enforcing private transactions and the need to protect the public domain of information.

The court, if it finds a particular term unenforceable under this section, may enforce the remainder of the contract if it is possible to do so. In considering this issue the court should consider the factors described in Restatement (Second) of Contracts §184.

This Act deals with general contract and commercial law principles. It does not promulgate a consumer protection code, although the Act does contain numerous consumer protections. Historically, consumer protection law has been defined on a state-by-state basis. This Act, as a general commercial statute, does not override these judgments. With the exception of the limited procedural rules in subsection (d), a state’s consumer protection statutes [or regulations] trump the general contract law of this Act. Thus, for example, a consumer protection statute that regulates advertising, mandates disclosure of the licensor’s main business office, requires disclosure of a term in specified content, manner, typeface or the like, provides for recovery of treble damages for particular types of breach, or limits disclaimers of warranty in a consumer contract, are not altered by this Act. Similarly, this Act does not alter the scope of coverage of any existing consumer statute since that scope is determined by the consumer protection statute itself. If the statute could reasonably be interpreted as applying to computer information transactions, it would be within this subsection (c).

5. State Law: Electronic Commerce Issues. Subsection (d) provides for limited displacement of other state law on several electronic commerce issues, shifting those requirements to standards consistent with the electronic commerce treatment in this Act. This approach parallels the treatment of this issue in digital signature laws and in electronic signature legislation, and is appropriate and necessary to facilitate the cost savings and expanded access to information that electronic commerce offers. The rules are limited to transactions within this Act. For computer information transactions generally, this Act supplants other law as to contract issues and this section merely reflects that. For consumer transactions, substantive statutes inconsistent with or in addition to those of this Act, such as the content, timing, and manner of a disclosure or warning, are preserved. As to four stated electronic commerce rules, however, this Act selectively replaces limited procedural rules but does not otherwise alter the substantive terms of the consumer law.

Subsection (d)(1) allows an electronic record to suffice for a writing required in a transaction within this Act. This assumes that the form and presentation of material and disclosures in the record otherwise meets the substantive requirements of the relevant other statute. For example, in some cases, a consumer protection statute requires that the consumer be able to retain the writing; this subsection does not alter that requirement. Similarly, in some consumer statutes requiring a writing, the requirement is that the consumer actually initial particular terms of the record. Subsection (d) does not alter that rule (although under other paragraphs of subsection (d), electronic "initials" can suffice for handwritten initials); the record that substitutes for a writing must be meet the other underlying requirements.

Similarly, subsection (d)(2) states that an authentication under this Act satisfies requirements of a signature if given for the purposes and in the context associated with the requirements of the other law.

Subsection (d)(3) updates the concept of conspicuousness when used, but not otherwise defined, in other law. The update reflects the electronic commerce themes adopted in this Act. This rule does not, of course, affect other type of disclosure rule. For example, a consumer protection rule which requires disclosure before a transaction occurs is not affected. Similarly unaffected is any rule that refers to the content of the required disclosure or which regulates the specific timing, form or manner in which it must be made. This over-ride does not apply to statutes that relate to advertising or the like – such statutes are not within the scope of this Act or are preserved.

6. Digital And Electronic Signature Statutes. Subsection (e) allows states with existing laws regarding digital signature, electronic signatures, and other similar statutes that apply or attribute acts of performances of a party in computer information transactions, to list any provisions of such statutes that the State that will prevail over this Act in the case of a conflict. For example, it is likely that such statutes do not provide a consumer defense to electronic errors of the type provided in Section 216 of this Act but instead simply attribute a contract made in compliance with statutes to the consumer regardless of error. If a State wishes to afford consumers the protections of Section 216, it should not list its other statutes. It is not necessary to list the Uniform Electronic Transactions Act because, by its terms, that act does not apply if UCITA applies.

Uniform Law Source: Uniform Commercial Code § 1-102(1)(2)(4).

Definitional Cross References: Section 102: "Agreement"; "Computer Information transaction"; "Conspicuous"; "Contract"; "Electronic"; "Party"; "Term".

1. Scope of the Section. This section brings together rules regarding construction and application of this Act.

2. Purpose of the Act. This Act must be construed in light of its purposes, as stated in paragraph (1). They are not regulatory, but are intended to facilitate and support commercial practice and to support its evolution through agreement and trade practices. To construe an act in light of its purposes does not mean that the general purposes supplant its specific provisions. However, in cases of uncertainty, the meaning of this Act should be construed by reference to the stated purposes and the themes developed in the Act, as opposed to inconsistent or extraneous contract law policies that contradict those of this Act.

3. Mandatory Language. This Act ordinarily does not use phrases such as "unless otherwise agreed" and frequently uses mandatory language such as "shall" or "must." Neither drafting style alters the basic rule that the agreement controls in all cases, except as indicated in Section 113(a). Paragraph (2) rejects decisions such as Suburban Trust and Savings Bank v. The University of Delaware, 910 F. Supp. 1009 (D. Del. 1995).

4. Negative Inference. Paragraph (3) resolves issues about the existence of a negative pregnant. In this Act, the statement of an affirmative result that occurs when certain conditions are met does not necessarily indicate that a different result occurs if the conditions are not met. Thus, if a provision states: "If the originator of a message requests acknowledgment, the following rules apply: ---", this does not indicate what rule governs in the absence of a request. Similarly, a provision that states that particular language or procedure yields a specific result does not indicate what result occurs with different language or procedure. It merely states the affirmative proposition. If a different interpretation is intended, that different interpretation is made explicit in the section.

Definitional Cross References: Section 102: "Agreement"; "Authentication"; "Electronic"; "Electronic agent"; "Person"; "Record"; "Receive"; "Sent". Section 112: "Manifestation of assent".

1. Scope of Section. This section states several fundamental principles relevant to enabling electronic commerce in computer information. The rules apply only to transactions within this Act and do not directly pertain to other transactions or to subject matter excluded under Section 103, such as transactions involving motion pictures and sound recordings.

2. Equivalence of Electronics. Subsection (a) is an express recognition that the fact that a message, record or authentication is electronic does not alter its legal impact. This equivalency refers to the form of the authentication or record, and not to its content. See also Section 105(d). Subsection (a) merely states an affirmative legal principle: it does not address questions of proof or attribution of the record or authentication. In particular, the subsection does not alter evidence rules relating to when an original copy of a record is required or what, in a digital world, constitutes an original.

3. Requiring Electronics. Subsection (b) makes clear that nothing in this Act requires parties to use electronic processes. In some cases, the parties may wish to require traditional writings and this Act does not disturb that choice. It merely builds the proper legal framework for electronic commerce, consisting of a legal regime in which electronics and paper records are equivalent in law. Parties may determine to use, or not to use, that framework.

4. Establishing requirements. Consistent with the idea of contractual freedom and personal choice, subsection (c) makes it clear that parties can set their own requirements regarding records or authentication that are acceptable to them. They are not required to deal electronically or to accept an electronic record or authentication. This principle, of course, does not authorize one party unilaterally to change requirements that were established by an agreement between the parties. On the other hand, the principle does not require the parties to establish requirements or make an agreement regarding same – the section simply clarifies that they are free to do so if they so choose. Subsection (c) also recognizes that a person can insist on conformance with requirements that are offered or agreed. Thus, while typing one’s name with the requisite intent may suffice as an authentication, parties are free to require a different form of authentication, such as a digital signature utilizing public/private key encryption. Nothing in this Act disturbs that ability to so contract. Ordinary standards of waiver, estoppel and the like, along with general rules of offer and acceptance provide standards for dealing with issues that might arise in this context.

5. Electronic Agents. Subsection (d) states the general principle that operations of an electronic agent bind the party that used the agent for that purpose. This is limited to situations where the party selects the agent, a concept which covers the case where the party consciously elects to employ the agent on its own behalf, whether that agent was created by it, licensed from another, or otherwise adopted for this purpose.

Electronic agents enable important reduction in transactional costs and broaden the ability to search and interact with the myriad sites found on the Internet and similar systems. The concept stated here embodies principles like those in ordinary agency law. The electronic agent must be functioning within its intended purpose. For human agents, this is often described in terms of whether the agent acted within the scope of its authority. Here, since we deal with automation, the focus is more accurately placed on whether the agent was used for the relevant purpose. For a similar concept in a different context, see Playboy Enterprises, Inc. v. Webbworld, Inc., 991 F. Supp. 543 (N.D. Tex. 1997). Cases of fraud, manipulation and the like are discussed in Section 206.

Definitional Cross References. Section 102: "Attribution procedure"; "Authenticate"; "Information"; "Party"; "Record".

1. Scope of the Section. This section deals with two issues pertaining to proof of an authentication. It does not directly address to whom the authentication is attributed.

2. Method of Proof. Proof of authentication can occur in any manner. In the anonymous world of electronic commerce, one of the most important means of proving authentication is by showing that a process existed that required an authentication in order to proceed in an automated system. To satisfy the idea of authentication, however, it is not sufficient merely to show that some act was required to proceed. The act required to do so must constitute an authentication.

3. Authentication Procedure. Under Subsection (b), compliance with a commercially reasonable procedure for authentication removes questions about whether an authentication was intended or occurred. This is true both because the procedure is commercially reasonable and because the parties have adopted or agreed to using the procedure for that purpose. The attribution procedure must be one for authenticating a record and must be complied with. Compliance with such a procedure does not necessarily resolve issues regarding to whom the authentication is attributed, but obviously has some weight on that question. See Section 213. On whether an attribution procedure is commercially reasonable, see Section 212.

Uniform Law Source: Restatement (Second) of Conflicts 188. Revised.

Definitional Cross References. Section 102: "Access contract"; "Agreement"; "Consumer"; "Consumer contract"; "Contract"; "Copy"; "Delivery"; "Electronic"; "Licensor"; "Party"; "State"; "Term".

1. Scope of Section. This section deals with the enforceability of a contract term selecting applicable law and with what law applies in the absence of such terms. Subsection (a) honors an agreement by the parties, but establishes a consumer protection rule. Subsection (b) and (c) provide needed certainty for electronic commerce on what law applies in the absence of a contract term.

2. Contractual Choice of Law. Contract terms that select law applicable to the contract are routine in commerce. The information economy accentuates their importance because it allows remote parties to enter and perform contracts using systems spanning multiple jurisdictions and operating in circumstances that do not depend on physical location of either party or the information. The rule in subsection (a) enables small entities actively to engage in multi-national business; if an agreement cannot designate applicable law, even the smallest business could be subject to the law of all fifty states and all countries in the world. That would impose substantial cost and uncertainty on an otherwise efficient system and raise barriers to entry. This section is critical to the electronic commerce rules in this Act.

a. General Rule. This Act generally provides for enforcement of choice of law agreements in commercial contracts. This follows the rule adopted in a majority of decisions dealing with information-related contracts. See Medtronic Inc. v. Janss, 729 F.2d 1395 (11th Cir. 1984); Northeast Data Sys., Inc. v. McDonnell Douglas Computer Sys. Co., 986 F.2d 607 (1st Cir. 1993). The Restatement (Second) of Conflict of Laws § 188 has a similar rule, validating contract terms as to all issues that can be resolved by agreement and even validating many agreements as to otherwise non-waivable terms in many cases. Subsection (a) does not follow U.C.C. § 1-105 (1998 Official Text) which permits contract choices only if the selected law is of a jurisdiction with a "reasonable relationship" to the transaction. In a global information economy, limitations of that type are inappropriate, especially in cyberspace transactions where physical locations are often irrelevant or not knowable. Also, in global commerce parties may intentionally and appropriately wish to select a neutral forum because neither is familiar with the law of the other’s jurisdiction. In such a case, the chosen law may have no relationship at all to the transaction – that is why it was chosen. See, e.g., White House Report, A Framework for Global Electronic Commerce, July 1, 1997, ("The U.S. should work closely with other nations to clarify applicable jurisdictional rules and to generally favor and enforce contact provisions that allow parties to select substantive rules governing liability.").

b. Limitations. Contractual choice of law terms are subject to this Act’s general limitations on terms such as the doctrine of unconscionability, which might exclude a term that unreasonably makes a highly prejudicial choice of law in a contract of adhesion. Also, some agreed terms may be unenforceable under the overriding fundamental public policy of the forum state. Section 105(b). See Application Group, Inc. v. Hunter Group, Inc., 61 Cal. App.4th 881, 72 Cal. Rptr.2d 73 (Cal. App. 1998). Compare Lowry Computer Products, Inc. v. Head, 984 F. Supp. 1111 (E.D. Mich. 1997).

Subsection (a) creates a new, additional limit on these contract terms, providing that, in a consumer contract, the agreed choice of law cannot override an otherwise applicable rule which could not be altered by agreement under the law of the state whose law would apply in the absence of the contractual choice. This rule