D R A F T FOR APPROVAL UNIFORM COMPUTER INFORMATION TRANSACTIONS ACT NATIONAL CONFERENCE OF COMMISSIONERS ON UNIFORM STATE LAWS MEETING IN ITS ONE-HUNDRED-AND-EIGHTH YEAR DENVER, COLORADO JULY 23 30, 1999 UNIFORM COMPUTER INFORMATION TRANSACTIONS ACT WITH PREFATORY NOTE AND REPORTER'S NOTES Copyright 1999 By NATIONAL CONFERENCE OF COMMISSIONERS ON UNIFORM STATE LAWS The ideas and conclusions set forth in this draft, including the proposed statutory language and any comments or reporter's notes, have not been passed upon by the National Conference of Commissioners on Uniform State Laws or the Drafting Committee. They do not necessarily reflect the views of the Conference and its Commissioners and the Drafting Committee and its Members and Reporters. Proposed statutory language may not be used to ascertain the intent or meaning of any promulgated final statutory proposal. DRAFTING COMMITTEE ON UNIFORM COMPUTER INFORMATION TRANSACTIONS ACT CARLYLE C. RING, JR., 1401 H. Street, N.W., Suite 500, Washington, DC 20005, Chair JOHN A. CHANIN, 1020 Aoloa Place, Suite 206B, Kailua, HI 96734 STEPHEN Y. CHOW, One Beacon Street, 30th Floor, Boston, MA 02108 PATRICIA BRUMFIELD FRY, University of North Dakota, School of Law, P.O. Box 9003, Grand Forks, ND 58201 THOMAS T. GRIMSHAW, Suite 3800, 1700 Lincoln Street, Denver, CO 80203 LEON M. McCORKLE, JR., P.O. Box 387, Dublin, OH 43017-0387 THOMAS J. McCRACKEN, JR., Room 600, 134 N. LaSalle Street, Chicago, IL 60602 JAMES C. McKAY, JR., Office of Corporation Counsel, 6th Floor South, 441 4th Street, N.W., Washington, DC 20001 BRUCE MUNSON, Revisor of Statutes Bureau, Suite 800, 131 W. Wilson Street, Madison, WI 53703 LEWIS BART STONE, 52nd Floor, 200 Park Avenue, New York, NY 10166 RAYMOND T. NIMMER, University of Houston, Law Center, 4800 Calhoun, Houston, TX 77204, Reporter EX OFFICIO GENE N. LEBRUN, P.O. Box 8250, 9th Floor, 909 St. Joseph Street, Rapid City, SD 57709, President BARRY H. EVENCHICK, 8th Floor, One Gateway Center, Newark, NJ 07102, Division Chair AMERICAN BAR ASSOCIATION ADVISORS DONALD A. COHN, 14 Gale Lane, Greenville, DE 19807, Co-Advisor DANIEL S. COOLIDGE, 1000 Elm Street, Box 3701, Manchester, NH 03105, Law Practice Management Section Advisor MARY JO HOWARD DIVELY, One Oxford Centre, 40th Floor, Pittsburgh, PA 15219, Business Law Section Advisor GEORGE L. GRAFF, 30th Floor, 399 Park Avenue, New York, NY 10022, Co-Advisor LYNN P. HENDRIX, 1700 Lincoln Street, Suite 4100, Denver, CO 80203, Intellectual Property Law Section Advisor EXECUTIVE DIRECTOR FRED H. MILLER, University of Oklahoma, College of Law, 300 Timberdell Road, Norman, OK 73019, Executive Director WILLIAM J. PIERCE, 1505 Roxbury Road, Ann Arbor, MI 48104, Executive Director Emeritus Copies of this Act may be obtained from: NATIONAL CONFERENCE OF COMMISSIONERS ON UNIFORM STATE LAWS 211 E. Ontario Street, Suite 1300 Chicago, Illinois 60611 312/915-0195 UNIFORM COMPUTER INFORMATION TRANSACTIONS ACT TABLE OF CONTENTS PART 1. GENERAL PROVISIONS SUBPART A. SHORT TITLE AND DEFINITIONS SECTION 101. SHORT TITLE. . . . . . . . . . . . . . . . .14 SECTION 102. DEFINITIONS. . . . . . . . . . . . . . . . .14 SUBPART B. GENERAL SCOPE AND TERMS SECTION 103. SCOPE; EXCLUSIONS; AGREEMENT THAT ACT GOVERNS49 SECTION 104. SUPPLEMENTAL PRINCIPLES: COMMERCIAL PRACTICE; VARIATION BY AGREEMENT; GOOD FAITH; DECISION FOR COURT59 SECTION 105. RELATION TO FEDERAL LAW; TRANSACTIONS SUBJECT TO OTHER STATE LAW . . . . . . . . . . . . . . . . .63 SECTION 106. RULES OF CONSTRUCTION. . . . . . . . . . . .71 SECTION 107. LEGAL RECOGNITION OF ELECTRONIC RECORD AND AUTHENTICATION; USE OF ELECTRONIC AGENTS. .73 SECTION 108. PROOF AND EFFECT OF AUTHENTICATION . . . . .74 SECTION 109. CHOICE OF LAW. . . . . . . . . . . . . . . .75 SECTION 110. CONTRACTUAL CHOICE OF FORUM. . . . . . . . .79 SECTION 111. UNCONSCIONABLE CONTRACT OR TERM. . . . . . .81 SECTION 112. MANIFESTING ASSENT; OPPORTUNITY TO REVIEW. .83 PART 2. FORMATION AND TERMS SUBPART A. GENERAL SECTION 201. FORMAL REQUIREMENTS. . . . . . . . . . . . .92 SECTION 202. FORMATION IN GENERAL . . . . . . . . . . . .97 SECTION 203. OFFER AND ACCEPTANCE IN GENERAL. . . . . . 100 SECTION 204. ACCEPTANCE WITH VARYING TERMS. . . . . . . 102 SECTION 205. CONDITIONAL OFFER OR ACCEPTANCE. . . . . . 105 SECTION 206. OFFER AND ACCEPTANCE; ELECTRONIC AGENTS. . 107 SECTION 207. FIRM OFFERS. . . . . . . . . . . . . . . . 110 SECTION 208. FORMATION: RELEASES OF INFORMATIONAL RIGHTS110 SECTION 209. FORMATION: SUBMISSION OF INFORMATION . . . 112 SUBPART B. TERMS OF RECORDS SECTION 210. ADOPTING TERMS OF RECORDS. . . . . . . . . 114 SECTION 211. MASS-MARKET LICENSE. . . . . . . . . . . . 119 SECTION 212. TERMS OF CONTRACT FORMED BY CONDUCT. . . . 125 SECTION 213. PRETRANSACTION DISCLOSURES IN INTERNET TRANSACTIONS127 SUBPART B. ELECTRONIC CONTRACTS: GENERALLY SECTION 214. COMMERCIAL REASONABLENESS OF ATTRIBUTION PROCEDURE129 SECTION 215. DETERMINING ATTRIBUTION OF ELECTRONIC EVENT TO PERSON; RELIANCE LOSSES . . . . . . . . . . . . . 131 SECTION 216. ATTRIBUTION PROCEDURE FOR DETECTION OF CHANGES AND ERRORS: EFFECT OF USE . . . . . . . . . . 135 SECTION 217. ELECTRONIC ERROR: CONSUMER DEFENSES. . . . 137 SECTION 218. ELECTRONIC MESSAGE: WHEN EFFECTIVE; EFFECT OF ACKNOWLEDGING . . . . . . . . . . . . . . 140 PART 3. CONSTRUCTION SUBPART A. GENERAL SECTION 301. PAROL OR EXTRINSIC EVIDENCE. . . . . . . . 142 SECTION 302. PRACTICAL CONSTRUCTION . . . . . . . . . . 144 SECTION 303. MODIFICATION AND RESCISSION. . . . . . . . 146 SECTION 304. CONTINUING CONTRACTUAL TERMS . . . . . . . 149 SECTION 305. TERMS TO BE SPECIFIED. . . . . . . . . . . 152 SECTION 306. PERFORMANCE UNDER OPEN TERMS . . . . . . . 154 SUBPART B. INTERPRETATION SECTION 307. INTERPRETATION AND REQUIREMENTS FOR GRANT. 155 SECTION 308. DURATION OF CONTRACT . . . . . . . . . . . 160 SECTION 309. OUTPUT, REQUIREMENTS, AND EXCLUSIVE DEALING164 SECTION 310. DELIVERY TERMS . . . . . . . . . . . . . . 166 SECTION 311. AGREEMENT FOR PERFORMANCE TO PARTY'S SATISFACTION167 PART 4. WARRANTIES SECTION 401. WARRANTY AND OBLIGATIONS CONCERNING QUIET ENJOYMENT AND NONINFRINGEMENT . . . . . . . . . . . 169 SECTION 402. EXPRESS WARRANTY . . . . . . . . . . . . . 175 SECTION 403. IMPLIED WARRANTY: MERCHANTABILITY OF COMPUTER PROGRAM181 SECTION 404. IMPLIED WARRANTY: INFORMATIONAL CONTENT. . 185 SECTION 405. IMPLIED WARRANTY: LICENSEE'S PURPOSE; SYSTEM INTEGRATION189 SECTION 406. DISCLAIMER OR MODIFICATION OF WARRANTY . . 192 SECTION 407. MODIFICATION OF COMPUTER PROGRAM . . . . . 199 SECTION 408. CUMULATION AND CONFLICT OF WARRANTIES. . . 200 SECTION 409. THIRD-PARTY BENEFICIARIES OF WARRANTY. . . 200 PART 5. TRANSFER OF INTERESTS AND RIGHTS SUBPART A. OWNERSHIP AND TRANSFERS SECTION 501. OWNERSHIP OF INFORMATIONAL RIGHTS. . . . . 204 SECTION 502. TITLE TO COPY. . . . . . . . . . . . . . . 205 SECTION 503. TRANSFER OF CONTRACTUAL INTEREST . . . . . 207 SECTION 504. EFFECT OF TRANSFER OF CONTRACTUAL RIGHTS . 212 SECTION 505. PERFORMANCE BY A DELEGATE; SUBCONTRACT . . 213 SECTION 506. TRANSFER BY LICENSEE . . . . . . . . . . . 215 SUBPART B. FINANCING ARRANGEMENTS SECTION 507. FINANCING WHERE FINANCIER DOES NOT BECOME LICENSEE216 SECTION 508. FINANCE LICENSES . . . . . . . . . . . . . 217 SECTION 509. FINANCING ARRANGEMENTS: OBLIGATIONS IRREVOCABLE220 SECTION 510. FINANCING ARRANGEMENTS: REMEDIES OR ENFORCEMENT221 SECTION 511. FINANCING ARRANGEMENTS: MISCELLANEOUS RULES224 PART 6. PERFORMANCE SUBPART A. GENERAL SECTION 601. PERFORMANCE OF CONTRACT IN GENERAL . . . . 225 SECTION 602. LICENSOR'S OBLIGATIONS TO ENABLE USE . . . 228 SECTION 603. SUBMISSIONS OF INFORMATION TO SATISFACTION OF PARTY229 SECTION 604. IMMEDIATELY COMPLETED PERFORMANCE. . . . . 231 SECTION 605. ELECTRONIC REGULATION OF PERFORMANCE . . . 232 SUBPART B. PERFORMANCE IN DELIVERY OF COPIES SECTION 606. COPY: DELIVERY; TENDER OF DELIVERY . . . . 236 SECTION 607. COPY: PERFORMANCE RELATED TO DELIVERY; PAYMENT238 SECTION 608. COPY: RIGHT TO INSPECT; PAYMENT BEFORE INSPECTION239 SECTION 609. COPY: WHEN ACCEPTANCE OCCURS . . . . . . . 242 SECTION 610. COPY: EFFECT OF ACCEPTANCE . . . . . . . . 244 SUBPART C. SPECIAL TYPES OF CONTRACTS SECTION 611. ACCESS CONTRACTS . . . . . . . . . . . . . 246 SECTION 612. CORRECTION AND SUPPORT AGREEMENTS. . . . . 249 SECTION 613. CONTRACTS INVOLVING PUBLISHERS, DEALERS, AND END USERS251 SUBPART D. LOSS AND IMPOSSIBILITY SECTION 614. RISK OF LOSS OF COPY . . . . . . . . . . . 254 SECTION 615. EXCUSE BY FAILURE OF PRESUPPOSED CONDITIONS257 SUBPART E. TERMINATION SECTION 616. TERMINATION; SURVIVAL OF OBLIGATIONS . . . 260 SECTION 617. NOTICE OF TERMINATION. . . . . . . . . . . 262 SECTION 618. TERMINATION: ENFORCEMENT . . . . . . . . . 264 PART 7. BREACH OF CONTRACT SUBPART A. GENERAL SECTION 701. BREACH OF CONTRACT; MATERIAL BREACH. . . . 266 SECTION 702. WAIVER OF REMEDY FOR BREACH OF CONTRACT. . 269 SECTION 703. CURE OF BREACH OF CONTRACT . . . . . . . . 272 SUBPART B. DEFECTIVE COPIES SECTION 704. COPY: REFUSAL OF DEFECTIVE TENDER. . . . . 276 SECTION 705. COPY: INSTALLMENT CONTRACTS; REFUSAL AND DEFAULT278 SECTION 706. COPY: CONTRACT WITH PREVIOUS VESTED GRANT OF RIGHTS279 SECTION 707. COPY: DUTIES UPON RIGHTFUL REFUSAL . . . . 281 SECTION 708. COPY: REVOCATION OF ACCEPTANCE . . . . . . 284 SUBPART C. REPUDIATION AND ASSURANCES SECTION 709. RIGHT TO ADEQUATE ASSURANCE OF PERFORMANCE 287 SECTION 710. ANTICIPATORY REPUDIATION . . . . . . . . . 288 SECTION 711. RETRACTION OF ANTICIPATORY REPUDIATION . . 288 PART 8. REMEDIES SUBPART A. GENERAL SECTION 801. REMEDIES IN GENERAL. . . . . . . . . . . . 290 SECTION 802. CANCELLATION . . . . . . . . . . . . . . . 291 SECTION 803. CONTRACTUAL MODIFICATION OF REMEDY . . . . 295 SECTION 804. LIQUIDATION OF DAMAGES . . . . . . . . . . 300 SECTION 805. STATUTE OF LIMITATIONS . . . . . . . . . . 302 SECTION 806. REMEDIES FOR FRAUD . . . . . . . . . . . . 305 SUBPART B. DAMAGES SECTION 807. MEASUREMENT OF DAMAGES IN GENERAL. . . . . 305 SECTION 808. LICENSOR'S DAMAGES . . . . . . . . . . . . 309 SECTION 809. LICENSEE'S DAMAGES . . . . . . . . . . . . 315 SECTION 810. RECOUPMENT . . . . . . . . . . . . . . . . 319 SUBPART C. PERFORMANCE REMEDIES SECTION 811. SPECIFIC PERFORMANCE . . . . . . . . . . . 321 SECTION 812. LICENSOR'S RIGHT TO COMPLETE . . . . . . . 323 SECTION 813. LICENSEE'S RIGHT TO CONTINUE USE . . . . . 324 SECTION 814. RIGHT TO DISCONTINUE ACCESS. . . . . . . . 325 SECTION 815. RIGHT TO POSSESSION AND TO PREVENT USE . . 326 SECTION 816. ELECTRONIC SELF-HELP . . . . . . . . . . . 329 PART 9. MISCELLANEOUS PROVISIONS SECTION 901. EFFECTIVE DATE . . . . . . . . . . . . . . 335 SECTION 902. TRANSACTIONS COVERED . . . . . . . . . . . 335 UNIFORM COMPUTER INFORMATION TRANSACTIONS ACT PREFATORY NOTE Introduction The Uniform Computer Information Transactions Act (UCITA) is a contract law statute. It applies to "computer information transactions" as defined in Section 102, including commercial agreements to create, modify, transfer or distribute: computer software multimedia interactive products computer data and databases Internet and online information UCITA thus applies to many of the most significant transactions in the information age that are for the most part intangibles and currently subject to diverse common law and miscellaneous state statutes. The computer information and Internet industries comprise a large and fast growing part of the U.S. Yet, prior to this Act, transactions in these industries were governed by a complex, conflicting and uncertain body of case and statutory law not developed with reference to the challenges that computer information transactions present. The purposes of this Act are to: support and facilitate the realization of the full potential of computer information transactions in cyberspace; clarify the law governing computer information transactions; enable expanding commercial practice in computer information transactions by commercial usage and agreement of the parties; and make the law uniform among the various jurisdictions. UCITA marks an important turning point in the fastest growing part of the United States economy, providing a coherent and balanced legal basis for the transactions that shape computer-information industries. This is a cyberspace commercial statute. The goal of a commercial contract statute is not to redistribute wealth, but to provide a firm basis for marketplace transactions. UCITA sets out a variety of default rules relating to contract, which rules apply in the event that the parties agreement and surrounding trade practices do not provide terms on the particular issue. In this, UCITA is a balanced treatment of contract law that draws on common law, Article 2, and commercial practice. It is one of the most important proposed uniform laws considered by the NCCUSL, with the potential of establishing a uniform law for myriad computer-information-related transactions in the information age. Of Horses, Goods and Computer Information Computer information technologies have created a rapidly expanding, multifaceted industry. That industry already exceeds goods manufacturing sectors in the United States economy. Along with the services sector of the economy, it is growing rapidly while various fields of goods manufacturing stagnate or recede. UCITA sets out a contract base for computer information transactions that explicitly recognizes the importance of the unique modes of contracting and doing business in this industry; it adapts general contract law principles in a particularized manner to commercial transactions engaged in computer information. In this, it plays the same role for computer information transactions as original Article 2 of the Uniform Commercial Code played for sales of merchantile goods. Sixty years ago, Karl Llewellyn argued that it was important to develop a contract law framework for commercial sales of manufactured goods that departed from law applicable to commerce in horses and similar chattels which shaped prior law. The rules for the one (horses) did not adequately apply to the other (manufactured goods). While insightful judges might be able to surmount the difference, Llewellyn argued, some might not and, in any event, use of a wrong paradigm (horses) yielded uncertainty, complexity and risk of error when applied to merchantile goods. Llewellyn's insight was initially resisted. Over decades of vitriolic debate, however, his insight eventually won out, resulting in Article 2 of the Uniform Commercial Code. Article 2 emanated from the change in our economy from an agrarian commerce to an industrial commercial society and a desire to tailor commercial contract rules to that new type of commerce. Llewellyn's era was marked by controversy and a desire by many to reject the idea that changes in commerce were relevant to contract law. Then, the common "sense" was that decades-old rules derived on one focus could be adequately manipulated in court to fit modern commerce. That common "sense" was wrong. The economy has changed again. Goods-based transactions remain important, but transactions in intangibles of computer information are a central element of commerce. UCITA embraces a judgment that Llewellyn would have understood: changes fundamental to the type of transactions in an economy require newly tailored commercial contract rules to fit computer information commerce. Neither the subject matter nor the type of transactions in computer information are similar to sales or leases of goods. The law of toasters, televisions and chain saws is not appropriate for contracts involving on-line databases, artificial intelligence systems, software, multimedia, and Internet trade in information. Transactions in computer information are governed today by a complex, often inconsistent or uncertain blend of different aspects of state common law, rules of federal common law, and by various statutes, most of which were designed for other subject matter, such as Article 2 which focuses on sales of goods, rather than licenses of computer information. This mismatch of legal rules and the uncertainty of outcome adds complexity and cost to transactions. A recent study in the European Union found that huge expenditures were made for the legal costs associated with uncertainty of transactional and other law in Internet transactions alone. Given that the United States is the world leader on commercializing information resources, the costs are commensurately far greater here. The UCITA framework establishes a uniform approach to basic transactional issues that can yield important structure and cost savings facilitating commerce. UCITA flows from the considered judgment of a NCCUSL Drafting Committee made after having worked on the topic over a period of four years and in more than twenty-five meetings attended by hundreds of lawyers and non-lawyers. Because it touches on matters central to the new world economy and issues not previously a subject of uniform law, aspects of UCITA have been controversial. The controversies have never focused on more than a small portion of the Act. Many resulted in compromise solutions. Others reflect a misunderstanding of UCITA and how it corresponds to other uniform laws adopted by NCCUSL and by the States. These raise a continuing need to communicate accurate information about the Act. Some others result from conflicting fundamental policy views. There are many who have argued for a regulatory approach to transactions in this industry that would differ from the contract law approach applied to any other field of commerce. UCITA adheres to the norm of United States commercial law: freedom of contract is the philosophy of commerce. UCITA leaves in place basic consumer protection laws and adds several new consumer and licensee protections that extend beyond current law. However, the principle remains that markets and agreements control subject to unconscionability, fundamental public policy, and supplemental principles. Modern Economy and Transactions A drastic change in sources of value and value production in our economy beginning in the 1980's resulted in a new world economy in which the services and information sectors are commercially dominant. The computer information sector exceeds most manufacturing sectors in size. The computer software and on-line industries provide the basic fuel for the information age, but did not exist in the 1950's when Article 2 was developed. Today, information products increasingly dominate the economy. Contracts for computer information are not equivalent to transactions in goods, whether the issues focus on development, commercial exchange, or mass- marketing. Computer information contracts emphasize different issues and bring into play a different policy structure on issues ranging from allocation of liability risk to questions about how the right to use the informational subject matter is determined. One (goods) focuses on rights to a tangible item, while the other (computer information) focuses on intangibles and rights in intangibles. The contexts entail different contractual, transaction, property, and underlying social policies issues. Software, multimedia, digital databases, artificial intelligence systems, and other computer information products are governed by an intellectual property law dominated by copyright law. A copyright owner has the exclusive right to reproduce and distribute copies of a work, engage in public display or performances of the work, and modify the work. This intellectual property law is much different from property law for goods. In law, software and most other digital products are treated more like books, than like cars. A purchaser that acquires a copy of computer information remains subject to the fact that the copyright holder retains control over most uses of the copy of information, unless it licenses or sells some or all of its rights. Because the transactions focus on computer information, important transactional issues commonly exist in reference to what rights to use are to be conveyed. These issues are not present when goods are sold. In a sale of goods, the buyer owns the subject matter (e.g., the toaster); ownership creates exclusive rights in the item purchased. In contrast, when the subject matter is computer information, a person who acquires a copy may own the diskette, but does not own the information or rights associated with it. Instead, the person's rights to use the information depend on contract terms and intellectual property rights. Terms of the agreement determine what the purchaser obtains beyond the diskette. Transactions in computer information also differ in significant aspect from other more traditional transactions in other information. The nature of the information differs. Computer information is shaped by its technology. It is more susceptible to alteration and to perfect copying than is information in any other form, such as print books or magazines. To use computer information, one must copy it (into a machine and within the machine). See 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). That is not true with print information. This creates copyright law issues with which this Act does not deal, but also creates contract issues which are addressed. Similarly, while you might make a copy of a paperback article, the copy would be different from the original. In computer information, copies are identical to the first copy. The underlying property law and the ease of copying cause sharp differences in contracting practices between the computer information and the goods worlds. The differences are enhanced by Internet and online services. Indeed, in the modern market, while many users own machines that contain all the information resources they need, many systems use communications capabilities to allow a licensee to use software located thousands of miles away in "cyberspace." Basic Themes Five themes frame many of the terms of UCITA. These are: (1) the paradigm transaction is a license of computer information, rather than a sale of goods; (2) innovation and competitiveness have come from small entrepreneurial companies as well larger companies; (3) computer information transactions engage fundamental free speech issues; (4) a commercial law statute should support contract freedom and interpretation of agreements in light of the practical commercial context; and (5) a substantive framework for Internet contracting is needed to facilitate commerce in computer information. Licenses of Information The paradigmatic transaction is a license of computer information, rather than a sale of goods. A license is characterized by (1) the conditional nature of the rights or privileges conveyed to use the information, and (2) the focus on computer information, rather than on goods. A license differs from a sale or lease of goods in many ways, including in what the transferee receives by contract. One court stated: "[A] patent license agreement is . . . nothing more than a promise by the licensor not to sue the licensee [even] if couched in terms of "[L]icensee is given the right to make, use, or sell X"" Images of a transaction that conveys ownership are not germane to licensing. Licenses are commercial transactions in which contract terms define the product in ways that transcend contract terms in sales of goods. A sale of a car is a sale of a car. A license of a copy of software has different value if it grants a right to reproduce 100,000 copies or if it grants only a right to use a single copy. Yet, the copy of the computer information may be identical in both cases Subject to limited public policy restraints, license restrictions are routinely enforceable. Among other issues, courts have enforced license restrictions that: preclude commercial use of a database limit a right to access limit use to a specific computer limit use to internal operations of the licensee prevent distribution of copies for a fee require distribution in a defined package of software and hardware preclude modification of the computer information Contract law for licensing computer information and the fact of its interaction with intellectual property has existed for generations. UCITA provides a coherent framework for contracting in this field. Many licenses deal with intellectual property, but others are not based on intellectual property law. Licenses in Internet or for on-line services often grant a party permission to enter the electronic site and obtain information from the computer of the other party. That licensing does not depend on copyright or other intellectual property, but is important in the computer information world. UCITA describes this type of contract as an "access contract." Small Businesses Computer information transactions span a wide range of commercial practice. However, to an extent far greater than in goods manufacturing, the computer information industry is characterized by small companies (average size is less than twelve employees). This reflects the relatively small overhead and capital needs. The technology enables the creation and dissemination of computer information products without large capital investment. While there are many large and very significant software and database companies, the majority are small. A one or two person firm can engage in the development of computer information products that have significant commercial value. Transactions in which such a company agrees to develop software for Disney Corporation, Citibank, or General Motors are common. The ability of small entities to engage in significant information commerce has geometrically expanded with the advent of the Internet. Given this distribution of industry participants, the traditional image in the merchantile goods world of a large manufacturer dealing with small purchasers is often inverted in computer information transactions. This, of course, does not mean that economic leverage is balanced in all transactions, but simply that the direction of imbalance differs depending on the particular make-up of the particular transaction. Thus UCITA has been framed not only for transactions by large licensors dealing with small licensees, but also maintaining the viability of small innovative licensors who often deal with large licensees. Similarly, most computer information providers are both licensors and licensees in commercial practice. This is true because, for most computer information products, the product source involves combinations of information from numerous sources, obtained through licenses or similar transactions. Information and First Amendment Although computer information is a central feature of commerce in this economy, it is still information and calls into play the panoply of important social issues associated with information and its dissemination in our society. This has been reaffirmed in many settings by courts dealing with computer information liability and regulation issues. The most recent was in 1999 when the Ninth Circuit Court of Appeals invalidated a federal export regulation on export of software encryption technology because the regulation infringed First Amendment values associated with the encryption source code. A major goal in UCITA is to foster, rather than inhibit the expansion of distribution of computer information and to recognize the social values associated with it. The convergence of technology and the evolution of the information age reflects a fundamental shift in our society and in how people interact, trade and establish commercial relationships. "Informational content," which consists of sights, sounds, text, and images that are communicated to people, is important commercially. That does not diminish its political or social role. First Amendment and related policies remain central. What law does here affects not only the commercialization of information, but also the social values its distribution has always had in society. Informational content does not become something entirely different if the provider or author distributes it commercially, can hardly be a premise. Commercialization is not inconsistent with the role of information in political, social and other venues. These underlying values argue strongly for an approach to contract law in this field that does not encumber, but supports incentives for distribution of information and its distribution. This theme permeates the provisions of UCITA. However, it emerges most clearly in several provisions unique to this Act and which represent one of its most significant contributions to modern contract law. These include: Section 105 establishes a right of a court to invalidate a contract term that conflicts with fundamental public policy relating to information Section 404 recognizes an implied obligation of data accuracy, but excludes from that implied warranty published informational content Section 409 adopts the Restatement principle of third party liability and narrows that liability exposure for informational content Section 807 disallows consequential damages for the content of published informational content unless that exposure was expressly agreed to by the parties One aspect of these issues involves the relationship between contract and intellectual property law. For many years, owners of intellectual property have contracted for selective distribution of their property and limited contracted-for use. Contract law enforces contract choices, subject to specific preemptive restrictions in federal property law, antitrust, consumer, or misuse law. In most cases, patent and copyright law coexist with state contract law. Yet, there are important issues here. Digital technology and distribution systems change how and where information is made available and what rights or protections are appropriate for the new methods of distribution. The changes have led to a wide-ranging property law debate that ultimately goes to very fundamental social policy issues about the use and distribution of information. That debate has been argued in international treaty negotiations and in Congress. The issues cannot and should not be resolved as a matter of state contract law. UCITA adopts a neutral position with respect to what, ultimately, are issues of federal and international policy. However, UCITA provides a basis for case-by-case resolution of the myriad issues in Section 105(b). UCITA does not change the law on the enforceability of any restrictive clause that entails copyright misuse or that offends fundamental First Amendment concerns. The expectation is that, as they do today, courts will reject abusive clauses when they encounter them by applying existing doctrines that preserve the role of information in society. Federal intellectual property law also places some specific limits on contract. These include restrictions on transferability, some recording requirements, a statute of frauds, and a rule that enforces property rights against good faith purchasers. Federal law precludes any transfer of a licensee's rights in a non-exclusive license without the licensor's consent. This interaction of state law and federal law yields default rules that, in some cases, do not correspond to the treatment of analogous issues in the UCC. These provisions reflect a policy of correspondence of rules in addition to simple recognition that federal law preempts contrary state law. Freedom of Contract UCITA supports the basic policy of freedom of contract. This Act is a commercial statute built on two assumptions about commercial contract law. The first commercial law theme is that contract law should preserve freedom of contract. This is the same theme that permeates the Uniform Commercial Code as described in Article 2A: "This article was greatly influenced by the fundamental tenet of the common law as it has developed with respect to leases of goods: freedom of the parties to contract . . . These principles include the ability of the parties to vary the effect of the provisions of Article 2A, subject to certain limitations including those that relate to the obligations of good faith, diligence, reasonableness and care." The idea that parties are free to choose terms can be justified in a number of ways, including the continuing success of the U.S. market economy. In contract law, the idea of contractual freedom generates a preference in contract law for rules that provide background and play only a default or gap-filling function. A default rule applies only if the parties do not agree to the contrary. In UCITA, unless expressly indicated to the contrary, the effect of all of the rules in this Act can be varied by agreement. Section 104. A federal White Paper on global commerce in information strongly endorsed the non-regulatory and contract freedom approach taken in UCITA. A second commercial law theme defines uniform commercial codification as a means to facilitate commercial practice. Grant Gilmore expressed this in the following terms: The principal objects of draftsmen of general commercial legislation . . . is to assure that if a given transaction . . . is initiated, it shall have a specified result; they attempt to state as a matter of law the conclusion which the business community apart from statute . . . gives to the transaction in any case. Commercial practice is the appropriate standard for gauging contract law unless a clear countervailing policy indicates to the contrary or the contractual arrangement threatens injury to third-party interests which social policy desires to protect. Uniform contract laws do not over-ride or regulate contract practice. They support and facilitate it. UCITA embraces this philosophy. The best source of substantive rules lies not in a theoretical model, but in commercial and trade practice. This is not simple faith in empirical sources for commercial law. It stems from the reality that we may not know how law interacts with contract practice, but decisions about contract law will continue to be made. In those decisions, we should refer for guidance to the accumulation of practical choices made in actual transactions. The goal is a congruence between legal premise and commercial practice so that the transactions between contracting parties achieve commercially intended results. One expression of this policy is in Section 104(b) which states that: Any usage of trade in the business, trade or industry in which the parties are engaged or of which they are or should be aware, along with any course of dealing or course of performance between parties are relevant to determining the existence or meaning of an agreement. Transactions range from a casual deal between two individuals to transactions between sophisticated businesses employing lawyers and affecting billions of dollars of business. The approach is not to draft rules that a party would negotiate tailored to each particular case, but to select an intermediate framework whose contours are appropriate, but will often be altered by particular agreements. Like the Uniform Commercial Code, UCITA provides gap-filler rules that apply when the agreement of the parties or the trade and business practices between the parties do not provide applicable terms. Electronic Commerce A basic premise is that UCITA should facilitate continued expansion of electronic commerce in computer information. This should be done without any preference for a particular technology. The rules must be technologically neutral. The advent of the Internet as a commercial information resource has highlighted the importance of "electronic commerce", including electronic contracting issues. UCITA has been one source of principles for development of state law rules on contract aspects of electronic commerce. These rules are coordinated with the Uniform Electronic Transactions Act (UETA). However, they go beyond the purely procedural rules in that Act and provide a general contract law framework for electronic transactions involving computer information, where a contract can be formed and performed electronically. There are three issues that contract law must deal with in order to facilitate electronic commerce on Internet and similar systems. The first deals with procedural or authorization issues. Electronic commerce entails the use of computers to make and perform contracts. A threshold issue involves whether electronic records and signatures satisfy applicable law that focuses on paper-based signatures and writings. At this writing, almost one-half of all States have already adopted legislation authorizing electronic equivalents to writing requirements. UCITA, along with UETA and proposed revisions of Article 2 and Article 2A establish a uniform state law principle that allows electronic "authentication" as a form of signature, and recognizes the equivalence of electronic "records" and paper writings. The second issue deals with how one establishes the terms of an electronic contract. UETA does not generally deal with this issue, UCITA builds on two concepts to set out a framework for contracting and establishing contract terms. UCITA adapts common law concepts of manifestation of assent to contract terms to apply to electronic contexts. A manifestation of assent (Section 112) binds a party to the contract terms if, in context, the party had reason to know its acts would be treated as assent to the terms. However, this can occur only if the party had an opportunity to review the terms prior to assenting. This requirement, which might be inferred from case law, is made explicit in UCITA. UCITA follows case law holding that an on-screen "click" acceptance is binding, but refines that case law to require that the party had an opportunity to review terms before assenting. A safe harbor of a double click reaffirming assent is provided. UCITA resolves that actions of "electronic agents" can establish a contract. The term "electronic agent" refers to automated devices (e.g., computer programs) set out to achieve particular purposes, such as finding and acquiring information. The contract formation rules of UCITA treat the acts of such agents as binding on the party using them, but also provide safeguards to rectify the consequences of any mistake or fraud. The third issue deals with "attribution," that is, to whom a signature, message or performance is attributed in law. There are a number of approaches to this issue in current law. UCITA adopts the approach Article 4A of the U.C.C. Section 215 places the burden of establishing attribution on the person seeking to benefit from that attribution, but gives legal effect to a commercially reasonable "attribution procedure" used to identify a party. An "attribution procedure" is a procedure agreed to or adopted by the parties, or created by law, to identify a party as responsible for an electronic signature, message or performance. UCITA gives effect to an agreement about attribution only if the applicable procedure is commercially reasonable a safeguard primarily to the customer who otherwise would be bound to an agreement to a procedure that is less than commercially reasonable. Also, even if the agreement or procedure has an effect, other party can avoid responsibility by proving that the electronic event did not stem from areas under its control or for which it is responsible. Summary In an information age in which transactions in computer information represent an increasingly large portion of the national economy, the need for a coherent contract law base tailored for the types of transactions and transactional subject matter that characterize this industry is apparent. UCITA marks an important step, providing that basis by drawing on traditional United States commercial contract law principles and on modern practices in computer information. Enactment of this Act will serve to facilitate continued growth of commerce in computer information, truly the industry of the information era. UNIFORM COMPUTER INFORMATION TRANSACTIONS ACT PART 1 GENERAL PROVISIONS [SUBPART A. SHORT TITLE AND DEFINITIONS] SECTION 101. SHORT TITLE. This [Act] may be cited as Uniform Computer Information Transactions Act. SECTION 102. DEFINITIONS. (a) In this [Act]: (1) "Access contract" means a contract to obtain electronically access to, or information from, an information processing system of another person, or the equivalent of such access. (2) "Access material" means any information or material, such as a document, address, or access code, necessary to obtain authorized access to information or control or possession of a copy. (3) "Aggrieved party" means a party entitled to a remedy for breach of contract. (4) "Agreement" means the bargain of the parties in fact as found in their language or by implication from other circumstances including course of performance, course of dealing, and usage of trade as provided in this [Act]. Whether an agreement has legal consequences is determined by this [Act]. (5) "Attribution procedure" means a procedure established by law, administrative rule, or agreement, or a procedure otherwise adopted by the parties, to verify that an electronic event is that of a specific person or to detect changes or errors in the information. The term includes a procedure that requires the use of algorithms or other codes, identifying words or numbers, encryption, callback or other acknowledgment, or any other procedures that are reasonable under the circumstances. (6) "Authenticate" means: (A) to sign, or (B) otherwise to execute or adopt a symbol or sound, or to use encryption or another process with respect to a record, with intent of the authenticating person to: (i) identify that person; or (ii) adopt or accept the terms or a particular term of a record that includes or is logically associated with, or linked to, the authentication, or to which a record containing the authentication refers. (7) "Automated transaction" means a contract formed or performed in whole or in part by electronic means or by electronic messages in which the electronic actions or messages of one or both parties which establish the contract are not reviewed in the ordinary course by an individual before the action or response. (8) "Burden of establishing", with respect to a fact, means the burden of persuading a trier of fact that the existence of the fact is more probable than its non- existence. (9) "Cancellation" means an act by a party that puts an end to the contract for breach by another. (10) "Computer" means an electronic device that can perform substantial computations, including numerous arithmetic operations or logic operations, without human intervention during the computation or operation. (11) "Computer information" means information in electronic form that is obtained from or through the use of a computer, or that is in digital or equivalent form capable of being processed by a computer. The term includes a copy of information in that form and any documentation or packaging associated with the copy. (12) "Computer information transaction" means an agreement a primary purpose of which is to require a party to create, modify, transfer, or license computer information or informational rights in computer information. The term includes a support agreement to the extent covered in Section 612. (13) "Computer program" means a set of statements or instructions to be used directly or indirectly in a computer to bring about a certain result. The term does not include separately identifiable informational content. (14) "Consequential damages" resulting from breach of contract include (i) any loss resulting from general or particular requirements and needs of which the other party at the time of contracting had reason to know and which could not reasonably be prevented, and (ii) injury to person or damage to other property proximately resulting from any breach of warranty. The term does not include direct or incidental damages. (15) "Conspicuous", with reference to a term, means so written, displayed, or otherwise presented that a reasonable person against which it is to operate ought to have noticed it. A term in an electronic record intended to evoke a response by an electronic agent is conspicuous if it is presented in a form that would enable a reasonably configured electronic agent to take it into account or react without review of the record by an individual. Conspicuous terms include the following: (A) with respect to a person: (i) a heading in capitals in a size equal to or greater than, or in contrasting type, font, or color to, the surrounding text; (ii) language in the body of a record or display in larger or other contrasting type, font, or color or set off from the surrounding text by symbols or other marks that call attention to the language; and (iii) a term prominently referenced in an electronic record or display which is readily accessible and reviewable from the record or display; and (B) with respect to a person or an electronic agent, a term or reference to a term that is so placed in a record or display that the person or electronic agent can not proceed without taking some action with respect to the term or reference. (16) "Consumer" means an individual who is a licensee of information or informational rights that the individual at the time of contracting intended to be used primarily for personal, family, or household purposes. The term does not include an individual who is a licensee primarily for profit-making, professional, or commercial purposes, including agriculture, business management, and investment management other than management of the individual's personal or family investments. (17) "Consumer contract" means a contract between a merchant licensor and a consumer. (18) "Contract" means the total legal obligation which results from the parties' agreement as affected by this [Act] and any other applicable rules of law. (19) "Contract fee" means the price, fee, rent, or royalty payable in a contract under this [Act]. (20) "Contractual use restriction" means an enforceable restriction created by contract which concerns the use or disclosure of, or access to licensed information or informational rights, including a limitation on scope or manner of use. (21) "Copy" means the medium on which information is fixed on a temporary or permanent basis and from which it can be perceived, reproduced, used, or communicated, either directly or with the aid of a machine or device. (22) "Course of dealing" means a sequence of previous conduct between the parties to a particular transaction which establishes a common basis of understanding or interpreting their expressions and other conduct. (23) "Course of performance" means a sequence of conduct in a contract that involves repeated occasions for performance if a party, with knowledge of the nature of the performance and opportunity to object to it, accepts or acquiesces in the repeated performance without objection. (24) "Court" includes an arbitration or other dispute-resolution forum if the parties have agreed to use of that forum or its use is required by law. (25) "Delivery," with respect to a copy, means the voluntary physical or electronic transfer of possession or control. (26) "Direct damages" means compensation for losses measured by Section 808(b)(1) or 809(a)(1). The term does not include consequential or incidental damages. (27) "Electronic" means relating to technology having electrical, digital, magnetic, wireless, optical, or electromagnetic, or similar capabilities. (28) "Electronic agent" means a computer program, or electronic or other automated means used independently to initiate an action or respond to electronic messages or performances without intervention by an individual at the time of the action, response or performance. (29) "Electronic event" means an electronic authentication, display, message, record, or performance. (30) "Electronic message" means a record or display stored, generated, or transmitted by electronic means for the purposes of communication to another person or electronic agent. (31) "Financial accommodation contract" means an agreement under which a person extends a financial accommodation to a licensee which agreement does not create a security interest in a transaction that is subject to [Article 9 of the Uniform Commercial Code]. The agreement may be in any form, including a license, lease, or software lease. (32) "Financial services transaction" means a contract or a transaction that provides access to, use, transfer, clearance, settlement, or processing of: (A) deposits, loans, funds, or monetary value represented in electronic form and stored or capable of storage electronically and retrievable and transferable electronically, or other right to payment to or from a person; (B) an instrument or other item; (C) a payment order, credit card transaction, debit card transaction, or a funds transfer, automated clearing house transfer, or similar wholesale or retail transfer of funds; (D) a letter of credit, document of title, financial asset, investment property, or similar asset held in a fiduciary or agency capacity; or (E) related identifying, verifying, access-enabling, authorizing, or monitoring information. (33) "Financier" means a person that provides a financial accommodation to a licensee under a financial accommodation contract and either (i) becomes a licensee for the purpose of transferring or sublicensing the license to the party to which the financial accommodation is provided or (ii) obtains a contractual right under the financial accommodation contract to preclude the licensee's use of the information or informational rights under a license in the event of breach of the financial accommodation contract. The term does not include a person that selects, creates, or supplies the information that is the subject of the license, owns the informational rights in the information, or provides support, modifications, or maintenance for the information. (34) "Good faith" means honesty in fact and the observance of reasonable commercial standards of fair dealing. (35) "Incidental damages" resulting from breach of contract: (A) means compensation for any commercially reasonable charges, expenses, or commissions reasonably incurred by an aggrieved party with respect to: (i) inspection, receipt, transmission, transportation, care, or custody of identified copies or information that are the subject of the breach; (ii) stopping delivery, shipment, or transmission; (iii) effecting cover, return, or retransfer of copies or information after the breach of contract; (iv) reasonable efforts after the breach otherwise to minimize or avoid loss resulting from the breach; and (v) matters otherwise incident to the breach; and (B) does not include consequential or direct damages. (36) "Individual" means a human being. (37) "Information" means data, text, images, sounds, mask works, or computer program, including collections or compilations thereof. (38) "Information processing system" means an electronic system for creating, generating, sending, receiving, storing, displaying, or processing information. (39) "Informational content" means information that is intended to be communicated to or perceived by an individual in the ordinary use of the information, or the equivalent of that information. The term does not include computer instructions that control the interaction of a computer program with other computer programs or with a machine or device. (40) "Informational rights" include all rights in information created under laws governing patents, copyrights, mask works, trade secrets, trademarks, publicity rights, or any other law that gives a person, independently of contract, a right to control or preclude another person's use of or access to the information on the basis of the rights holder's interest in the information. (41) "Knowledge", with respect to a fact, means that a person has actual knowledge of the fact. (42) "License" means a contract that authorizes access to, use of, distribution, display, performance, modification, or reproduction of information, or use of informational rights, and expressly limits the contractual rights, permissions, or uses granted, expressly prohibits some uses, or expressly grants less than all rights in the information. A contract may be a license whether or not the transferee has title to a licensed copy. The term includes an access contract and a consignment of a copy. The term does not include a reservation or creation of a security interest. (43) "Licensee" means a transferee in a license or other agreement under this [Act]. A licensor is not a licensee with respect to rights reserved to it under the agreement. (44) "Licensor" means a transferor in a license or other agreement under this [Act]. Between a provider of access in an access contract and its customer, the provider is the licensor. Between the provider of access and a provider of the informational content to be accessed, the provider of content is the licensor. In an exchange of information or informational rights, each party is a licensor with respect to the information, informational rights, or access it provides. (45) "Mass-market license" means a standard form that is prepared for and used in a mass-market transaction. (46) "Mass-market transaction" means a transaction under this [Act] that is: (A) a consumer contract; or (B) any other transaction with an end-user licensee if: (i) the transaction is for information or informational rights directed to the general public as a whole including consumers, under substantially the same terms for the same information; (ii) the licensee acquires the information or rights in a retail transaction under terms and in a quantity consistent with an ordinary transaction in a retail market; and (iii) the transaction is not: (I) a contract for redistribution or for public performance or public display of a copyrighted work; (II) a transaction in which the information is customized or otherwise specially prepared by the licensor for the licensee other than minor customization using a capability of the information intended for that purpose; (III) a site license; or (IV) an access contract. (47) "Merchant" means a person that deals in information or informational rights of the kind or that otherwise by the person's occupation holds itself out as having knowledge or skill peculiar to the practices or information involved in the transaction, or a person to which such knowledge or skill may be attributed by the person's employment of an agent or broker or other intermediary that by its occupation holds itself out as having such knowledge or skill. (48) "Nonexclusive license" means a license that does not preclude the licensor from transferring to other licensees the same information, informational rights, or contractual rights within the same scope. The term includes a consignment of a copy. (49) "Notice" of a fact means that the person has actual knowledge of it, has received notice or notification of it, from all the facts and circumstances know to it, has reason to know that the fact exists. (50) "Notify", or "give notice", means to take such steps as may be reasonably required to inform the other person in the ordinary course whether or not the other person actually comes to know of it. (51) "Party", as distinguished from "third party", means a person that has engaged in a transaction or made an agreement within this [Act]. (52) "Person" includes an individual or an organization. (53) "Present value" means the value, as of a date certain, of one or more sums payable in the future or one or more performances due in the future, discounted to a date certain. The discount is determined by the interest rate specified by the parties in their agreement unless that rate was manifestly unreasonable when the transaction was entered into. Otherwise, the discount is determined by a commercially reasonable rate that takes into account the circumstances of each case when the agreement was entered into. (54) "Published informational content" means informational content prepared for or made available to recipients generally, or to a class of recipients, in substantially the same form. The term does not include informational content that is: (A) customized for a particular recipient by an individual or group of individuals acting as or on behalf of the licensor, using judgment or expertise; or (B) provided in a special relationship of reliance between the provider and the recipient. (55) "Reasonable time" means any time which is not manifestly unreasonable. What is a reasonable time for taking an act depends on the nature, purpose and circumstances of such act. (56) "Reason to know", with respect to a fact, means that: (A) a person has knowledge of the fact; or (B) from all the facts and circumstances known to the person without investigation, the person should be aware that the fact exists. (57) "Receive" means: (A) with respect to a copy, to take delivery; or (B) with respect to a notice: (i) to come to a person's attention; or (ii) to be delivered to and available at a location or system designated by agreement for that purpose or, in the absence of an agreed location: (I) to be delivered at the person's residence, or the person's place of business through which the contract was made, or at any other place held out by the person as a place for receipt of communications of the kind; or (II) in the case of an electronic notification, to come into existence in an information processing system in a form capable of being processed by or perceived from a system of that type by a recipient, if the recipient uses, or otherwise has designated or holds out that system or address as a place for receipt of notices of the kind and the sender does not know that the notice cannot be accessed from the particular system of the recipient. (58) "Record" means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form. (59) "Release" means an agreement not to object to, or exercise any remedies to limit, the use of information or informational rights, if the agreement requires no affirmative act by the party giving the release to enable or support the other party's use of the information or informational rights. The term includes a waiver of informational rights. (60) "Return", with respect to information to which a rejected record applies, means: (A) with respect to a licensee that rejects a record: (i) with respect to a single information product transferred for a single contract fee, reimbursement of any contract fee paid from the person to which it was paid or from another person that may offer to reimburse that fee, and a right to stop payment of the contract fee, on proof of purchase and return of the information and all copies within a reasonable time after delivery to the licensee; and (ii) with respect to an information product provided as part of multiple information products integrated into a bundled whole but retaining their separate identity and transferred for one contract fee: (I) if the record is rejected before or during the initial use of the bundled product and that product is returned without further use and along with all other information products bundled along with it, reimbursement of the aggregate contract fee for all bundled information products, on proof of purchase and return of all the bundled products and all copies within a reasonable time after delivery; or (II) if a separate fee was identified by the licensor as charged to the licensee for a particular bundled information product, reimbursement of any separate contract fee paid for the separate information to which the rejected record applies, on proof of purchase and return of that information and all copies within a reasonable time after delivery; and (B) with respect to a licensor that rejects a record proposed by the licensee, a right to receive redelivery of the information from the licensee, to stop delivery or access to the licensee, and reimbursement from the licensee of amounts paid by the licensor with respect to the rejected record along with reimbursement to the licensee of fees that it paid with respect to the rejected record. (61) "Scope", with respect to a license, means terms defining: (A) the licensed copies, information, or informational rights involved; (B) the use or access authorized, prohibited, or controlled; (C) the geographic area, market, or location; and (D) the duration of the license. (62) "Seasonable" with respect to an act, means taken within the time agreed or, if no time is agreed, at or within a reasonable time. (63) "Send" means, with any costs provided for and properly addressed or directed as reasonable under the circumstances or as otherwise agreed, to (i) deposit in the mail or with a commercially reasonable carrier, (ii) deliver for transmission to or re-creation in another location or system, or (iii) take the steps necessary to initiate transmission to or re-creation in another location or system. In addition, with respect to an electronic message, the term means to initiate operations that in the ordinary course will cause the record to come into existence in an information processing system in a form capable of being processed by or perceived from a system of that type by the recipient, if the recipient uses or otherwise has designated or held out that system or address as a place for the receipt of communications of the kind. Receipt within the time in which it would have arrived if properly sent has the effect of a proper sending. (64) "Software" means a computer program, informational content included in the program, and any supporting information provided by the licensor. (65) "Software lease" means a lease of a copy of a computer program, whether or not the lease is a lease under [Article 2A of the Uniform Commercial Code]. (66) "Standard form" means a record or a group of related records containing terms prepared for repeated use in transactions and so used in a transaction in which there was no negotiation by individuals except to set the price, quantity, method of payment, selection among standard options, or time or method of delivery. (67) "Term", with respect to an agreement or contract, means that portion of an agreement which relates to a particular matter. (68) "Termination" means the ending of a contract by either party pursuant to a power created by agreement or law otherwise than for its breach. (69) "Transfer": (A) with respect to a contractual interest, includes an assignment of the contract, but does not include an agreement to perform a contractual obligation or exercise contractual rights through a delegate or a sublicensee; and (B) with respect to computer information, includes a sale or lease of a copy as well as an assignment of informational rights in computer information. (70) "Usage of trade" means any practice or method of dealing that has such regularity of observance in a place, vocation, or trade as to justify an expectation that it will be observed with respect to the transaction in question. (b) The following definitions in [the Uniform Commercial Code] apply to this [Act]: (1) "Document of title" [Section 1-201]. (2) "Financial asset" [Section 8-102(a)(9)]. (3) "Funds transfer" [Section 4A-104] (as applied to credit orders). (4) "Identification" to the contract [Section 2-501]. (5) "Instrument" [Sections 9-105(i)] (1995 Official Draft); [9-102(a)(47)] (1998 Approved Draft). (6) "Item" [Section 4-104]. (7) "Investment property" [Section 9-115(f)] (1995 Official Draft); [9-102(a)(49)] (1998 Approved Draft). (8) "Lease" [Section 2A-102]. (9) "Letter of credit" [Section 5-102]. (10) "Negotiable instrument" [Section 3-104]. (11) "Organization" [Section 1-201]. (12) "Payment order" [Section 4A-103] (as applied to credit orders). (13) "Purchase" [Section 1-201]. (14) "Purchaser" [Section 1-201]. (15) "Sale" [Section 2-106]. (16) "Security interest" [Section 1-201]. Reporter's Notes 1. "Access contract." An access contract authorizes access to an electronic facility, including a computer or an Internet site, or authorizes obtaining information from that type of facility. The term does not include contracts that grant a right to enter a building or other physical location. Nor does it include the purchase of a television, radio, or other similar goods merely to create a technological ability to access information, when such purchase is not a contractual authorization for access. The term "access contract" is typified by "on-line" and Internet services, but also includes contracts for remote data processing, third party e-mail systems, and contracts allowing automatic updating from a remote facility to a database held by the licensee. The term does not encompass ordinary interactions among licensed computer programs within a single system; such transactions do not involve access to a system of another person. However, if an on-line data provider elects to provide access in part by allowing its database to be loaded into the computer of a client, this method of performance retains all of the characteristics of an access arrangement and is within the definition. Thus, if the provider arranges with a high volume user to transfer all or part of the provider's database to the client's system, allowing access and use on the same terms as in the provider's system, the arrangement is an access contract. The same is true if the contract provides a copy of the database on media to be loaded into the user's system, but the data are intermittently updated through transfers of data from remote systems. On the other hand, if a software publisher simply allows access to and downloading of software into a licensee's systems, the continuing right to use the software after it is downloaded is a license, but not an access contract. Many access contracts do not depend on intellectual property rights. The owner of a computer system has a fundamental right to exclude others from access to its system and to condition the terms on which it permits access. This does not mean that access to identical information cannot be obtained elsewhere, but merely that the access provider can establish contractual terms of access that bind the other party even though the licensee could, if it chose, obtain identical information from other sources or its own research. An access provider may, or may not, be in a position to give contractual rights in the information accessed. In some cases, that information is controlled by the access provider, while others entail a three-party framework. In a three-party relationship, one party provides access, while another (the content provider) licenses use of the information. This latter transaction involves two and, in some cases, three contracts. The first is between the content provider and the access provider. This may be an ordinary license or an access contract that gives the access provider a right to provide a gateway to information contained in a system controlled by the content provider. The second is between the access provider and the end user. This is an access contract. The third arises if the content provider contracts directly with the end user, that too is an access contract. The various contracts are independent of each other. 2. "Attribution procedure." An "attribution procedure" refers to an agreed, adopted, or otherwise established procedure to identify the person who sent an electronic message, or to verify the absence of changes in the message content. Agreement to or adoption of a procedure may occur between the two parties or through a third party. For example, the operator of a multi-database system which includes databases provided by third parties, may arrange with database providers and customers for agreement to or adoption of a particular attribution procedures. Those arrangements, although made with the third party, may establish an attribution procedure for purposes of this Act between the customers and the individual database providers. Electronic commerce is anonymous in character and depends on such procedures and their recognition in law and practice. The effect of an attribution procedure is discussed in Sections 108, 215, and 216. The legal benefits of using an attribution procedure only apply to commercially reasonable procedures. See Section 214. 3. "Authenticate." This term replaces "signature" and "signed," terms which are more appropriate for paper transactions than for electronic transactions. The definition clarifies that qualifying electronic systems are adequate. However, any act that would be a signature under prior law is an authentication. Similarly, the definition indicates two purposes for which an authentication can be intended. This list refers only to the use of the term within this Act. It does not alter general concepts about the use of signatures, initials, or the like in which, for example, a signature may be intended to establish or confirm the integrity of the content of the signed record. Like a signature, an "authentication" may express various effects. The definition focuses on effects that may be relevant to the provisions of this Act, namely: (i) identifying the person, and (ii) adoption of a record or specific term(s). An authentication may have other functions such as confirmation of the content of the authenticated record. Omission of that function from the definition does not change law or alter the ability of the parties to use an authentication for that purpose. As under prior law for "signature," what effects are intended are determined by the context and objective indicia associated with that context. Authentication may be on, logically associated with, or linked to the record. Subparagraph (B) follows the proposed EU Directive on Electronic Signatures and reflects the fact that, 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 record need not be physical in nature. It can be electronic. However, there must be a direct association such that it can be reasonably inferred that the authenticating party intends by that act to adopt or accept the associated record. The reference to "linked" captures a similar concept applicable to current technology in 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 identifiers such as a PIN number, a types or otherwise signed name. It includes qualifying actions and sounds such as encryption, voice and biological identification, and other technologically enabled acts. The term does not include entirely transient communications, such as a mere verbal statement of agreement. On the other hand, a voice print, voice recognition, or similar technology is adequate, even though such might not involve a retained record. In many situations, such as those involving the use of PIN numbers or similarly sensitive identifiers, neither party will desire to record and retain a record of the identifier even though its use can constitute an authentication. In "digital signature" systems, the term "authentication" is sometimes used differently. In those systems, it is common that one party applies an encryption technology to a record or message and a second party (recipient) take actions that confirm the identity of the party. Sometimes, the recipient's confirming actions are referenced as "authenticating" the record. That usage is not followed in this Act. In this Act, "authenticate" describes the acts (and intent) of the person executing the symbol or taking the initial action and not what another party (the recipient) does to confirm the identity of the other person or its acceptance of the record. Authenticate refers to the signing, not the confirming, step in digital signature or other technologies. The definition is technologically neutral. Technology and commercial practice are evolving and no specific standards of technological sufficiency are appropriate. Rather, procedures are subject to evidentiary scrutiny as to the requisite intent, proof that they were used, and assessment of whether the procedures are commercially reasonable. 4. "Automated transaction." This term refers to contracts formed automatically and which become effective even though one or both of the parties are represented by an electronic system, rather than a human being. Automated contracting is widely used. While law could fictionally attribute intent to these automated activities, this Act recognizes that operations of automated systems can create binding legal obligations for those who use them for that purpose. 5. "Cancellation." This definition is from original Section 2-106 of the Uniform Commercial Code. The effect of cancellation is stated in Section 802. 6. "Computer information." This term focuses on information that is in an electronic form that is accessible and useable by a computer. The reference to "equivalent form" refers to analog and any future computational technologies, eliminating the possibility that a reference to "digital" technology would otherwise lock the scope of the Act to a particular, current technology. The term does not cover information merely because it could be scanned or otherwise entered into a computer, but is limited to electronic information in a form capable directly of being 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 computer systems. The term includes the information as well as the copy of the information (e.g., diskette containing the information) and its documentation. As discussed in the notes to Section 103, the term includes treatment of "embedded computer" programs, providing a basis to distinguish between situations in which the computer information is merely incidental to goods. 7. "Computer information transaction." This term refers to transactions where the primary focus of the transaction includes the computer information. It does not cover information that is merely incidental to a transaction. On the other hand, the term is not limited to cases where the computer information is the single primary purpose of the deal. In many cases, aspects of a transaction focus on computer information, while other aspects focus on goods or other contractual subject matter. As indicated in Section 103(b), where there is a blend of goods and computer information, this Act will apply to the computer information, while Article 2 or 2A of the Uniform Commercial Code apply to the goods. The mere fact that information related to a transaction is sent or recorded in digital form is not sufficient to be within this definition. The creating, modifying or obtaining the computer information itself must be a primary purpose of the agreement. Thus, a contract for airplane transportation is not a transaction within this Act simply because the ticket is 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 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 computer information transaction be a transaction to create or modify computer information. This includes agreements such as software development contracts. However, 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 produced through some business, professional, artistic, or imaginative effort. This Act also does not cover contracts to create print books or articles since these do not focus on computer information. 8. "Computer program." The first sentence parallels copyright law. 17 U.S.C.  101 (1998). In this Act, a distinction exists between computer programs as operating instructions and "informational content" communicated to people. "Computer program" refers to functional and operating aspects of a digital system, while "informational content" refers to output that communicates to a human being. There is an inevitable overlap. However, if issues arise that require a close distinction, the answer lies in whether the issue addresses operations (program) or communicated content (informational content). This issue pertains solely to contract law issues under this Act. It does not relate to the copyright law question of distinguishing between a process and copyrightable expression. The distinction here is more like that made in copyright law between a computer program as a "literary work" (code) and output as an "audiovisual work" (images, sounds). In copyright, the distinction relates to whether a copyrighted work was created or infringed. In this Act, the distinction relates to contract law issues in determining liability risk and performance obligation. 9. "Consequential damages." Consequential damages do not include "direct" or "incidental" damages. Consequential loss deals with loss of benefits anticipated as a result of not being able to exploit the expected contracted performance. These damages include lost profits resulting from that lost opportunity, damages to reputation, lost royalties expected from a licensee's proper performance, lost value of a trade secret from wrongful disclosure or use, 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. Consequential damages may be recovered by either party. The losses must be an ordinary and predictable result of the breach. In the case of economic and similar losses, they must be foreseeable. This means that, for the injured party to recover compensation for losses resulting from its special circumstances, the party in breach must have had notice of those circumstances at the time of contracting. The particular needs and circumstances must be made known at that time. In contrast, losses from ordinary general requirements can often be presumed to have been within the contemplation of the other party. In addition, of course, to be foreseeable the losses must not derive from atypical risk taking by the aggrieved party, such as in a failure reasonably to maintain back-up systems for retrieval of data. The burden of proving loss is on the party claiming damages. This Act does not require proof with absolute certainty or mathematical precision or beyond the standard of proof at common law, but does not permit recovery of losses that are speculative or otherwise highly uncertain. See Section 707 and Restatement (Second) of Contracts  352 ("Damages are not recoverable for loss beyond the amount that the evidence permits to be established with reasonable certainty."). See also Freund v. Washington Square Press, Inc., 34 N.Y.2d 379, 357 N.Y.S.2d 857, 314 N.E.2d 419 (1974) ("[Plaintiff's] expectancy interest in the royalties . . . was speculative."). No change in law is intended. The definition does not specifically refer to mitigation through cover, but the concept of mitigation (including cover) limits all damage claims under Section 807. No change in law is intended by deletion of the reference to "cover" from the original definition in the U.C.C. A party can recover compensation only for losses that it could not reasonably have prevented by cover or otherwise. The definition continues current law as to recovery of damages for personal injury or property damage that "proximately" resulted from the breach. For example, where the injury follows use of a computer program without discovery of a defect causing the damage, the question of "proximate" cause turns on whether it was reasonable for the licensee to use the information without an inspection that would have revealed the defect. If it was not reasonable for it to do so or if the licensee did in fact discover the defect prior to use, the injury would not proximately result from the breach of warranty. Also, proximate causation may not exist where the damages are the result of a misuse of the computer information or a use that violates clear warnings against the particular type of use. Under the standard stated here, damage to other property (e.g., property not within the contract itself) constitutes consequential damages. However, the term does not include direct damages. Thus, for example, a breach of a non-infringement warranty or a breach of an indemnity obligation for cases of liable, are direct damages indicating that the performance had less value than expected. 10. "Conspicuous." This definition follows original Article 1 of the U.C.C., but adjusts the standard to reflect modern practice. Whether a term is conspicuous is a question to be determined by the court. Section 106. The basic rule is that a term is conspicuous with respect to a person if it is so positioned or presented that the attention of an ordinary individual can reasonably be expected to be called to it. Often, this involves presentation 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. If a transaction involves use of an electronic agent, presentation of the term must be such as to be capable of invoking a response from a "reasonably configured" electronic agent. As under prior law, this Act delineates some methods of making a term conspicuous. These have an important role in commercial practice. The purpose of 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. A term that reasonably conforms is conspicuous. The illustrations, however, are not exclusive. In cases outside the illustrative safe harbors, a court should apply the general standard. The definition encompasses methodologies relevant in modern commerce, including 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 so 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 the term and the party using the screen, by taking an action with reference to the display, 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 physically going to a location such as by driving to a store. When the term is accessed, it must be readily reviewable. The fact that an entire record is prominently referenced does not automatically mean that a particular term in that record is conspicuous. Paragraph (B), which operates independently of paragraph (A), recognizes a procedure by which, without taking action with respect to the term or reference, the party cannot proceed further in reference to the display or location. Thus, a screen that states: "There are no warranties of accuracy with respect to the information" and is displayed in a way that precludes the user from proceeding without assent to or rejection of this condition, suffices. The deletion of the word "clause" from Article 1 of the Uniform Commercial Code is not substantive. The definition, however, does reject the Article 1 view that all terms in a "telegram" are conspicuous and also requires, unlike current law, that for a heading to be conspicuous it must be in larger or contrasting type than the surrounding text. As to telegrams, since a "telegram" includes "any mechanical method of transmission", no rule that the terms are automatically conspicuous is justified. 11. "Consumer." A "consumer" is an individual that 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" uses of information or informational rights are not consumer uses (e.g., stock broker personally using software to monitor client investments). The definition distinguishes profit making, professional or business use, from primarily non-business personal or family use, treating only the latter as a consumer use. A purpose stated in the agreement would ordinarily determine the purpose of the transaction for this definition. The second sentence clarifies an important issue, but does not alter the definition of "consumer" as properly applied. A transaction providing information for profit-making or income production is not a consumer transaction, unless it is for ordinary family asset management. The profit-making standard is followed in many of areas of law. See, e.g., Thomas v. Sundance Properties, 726 F.2d 1417 (9th Cir. 1984); In re Booth, 858 F.2d 1051 (5th 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 "extensions of credit primarily for business, commercial, or agricultural purposes"). 12. "Contract fee." This term includes any money payment required under a contract. 13. "Contractual use restriction." This term includes any enforceable restriction on use or disclosure of information or informational rights created by a contract under this Act. Use restrictions relate only to the copies and information provided under the license. Unless otherwise expressly indicated, a contractual use restriction does not restrict use of the same information lawfully obtained from other sources. The restriction must come from a contract. The term does not include limitations imposed by property or regulatory law. The definition does not include terms unenforceable under this Act or other law, including laws which limit enforcement of some restrictions on use of information. Thus, if trade secret law precludes enforcement of a particular non-disclosure or non-competition term, that term is not a contractual use restriction to the extent of its unenforceability. 14. "Copy" refers to the media containing information and not the information itself. In this Act, the term relates 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 particular medium can be temporary. For example, an agreement to deliver a copy of information that can be reviewed by the transferee for one hour is met by delivery of or access to the information from a tangible medium on which it remains only for one hour. This Act does not deal with the copyright law question of whether a brief reproduction in computer memory is an infringement under copyright law. 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). 15. "Delivery." Delivery can occur either through transfer of possession of a tangible copy or by electronic transfer. Under modern technology, it is often true that in electronic transfers a copy does not move from one location to another. Transfers more often involve copying the information into another location or making it available in a common system shared or accessible by the recipient and the person making the delivery. 16. "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 the market value of other consideration for the performance as appropriate. This definition 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. If there is a failure to perform a contractual indemnification term, the amount to be indemnified is a form of direct damages in that it is a direct contractual obligation of a party. 17. "Electronic." While most modern information systems use electronic technologies, the term is open-ended and encompasses forms of information processing technology that may be developed in the future. 18. "Electronic agent." This term is part of the framework for recognition of electronic commerce and automated contracting. It refers to an automated means for making or performing contracts. The agent must act independently. Thus, mere use of an automated means such as a telephone or e-mail system does not entail use of an electronic agent. The term includes a computer program, but is not limited to that technology. The automated system must have been selected, programmed or otherwise used for that purpose by the person to be bound by its operations. In automated transactions, an individual does not deal with another individual, but one or both parties are represented by electronic agents. As indicated in Sections 206 and 215, 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 actor. Parties who employ electronic agents are ordinarily bound by the results of their operations. 19. "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 serve as a medium for recording information. Communication in modern technology does not necessarily require that the message move from one location to another. Communication of a message may entail copying it into another location or making it available in a common system shared by or accessible to the recipient. In effect, it is "stored" for purposes of communicating to another. Two different types of message are included. One, such as a fax, a telex, or an e-mail, is intended for a human recipient. The second type involves information communicated where the intended recipient is a computer or computer program operating without review by a human. 20. "Good Faith." This definition expands the standard in original Section 2-103(b) of the U.C.C. and rejects the pure "honesty in fact" standard. While good faith in performance is an element of all contracts, the concept does not over-ride express contract terms or their enforcement. See Kham & Nates Shoes No. 2, Inc. v. First Bank of Whiting, 908 F.2d 1351 (7th Cir. 1990); Amoco Oil Co. v. Ervin, 908 P.2d 493 (Colo. 1995); Badgett v. Security State Bank, 116 Wash.2d 563, 807 P.2d 356 (1991). A lack of good faith cannot be shown simply by the fact that the party insisted on compliance with the express terms of the agreement. The primary focus of the concept applies if a party has discretion under the contract and requires that the discretion should be exercised in a good faith manner. Davis v. Sears, Roebuck & Co., 873 F.2d 888 (6th Cir. 1989). Good faith is not a negligence or reasonable care standard. Fair dealing is concerned with the fairness of the conduct rather than the care with which an act is performed. A failure to exercise ordinary care in a transaction is an entirely different concept than failure to deal fairly. Both fair dealing and ordinary care are judged in light of reasonable commercial standards, but the standards in each case are directed to different aspects of commercial conduct. The fair dealing concept does not alter the rule that good faith obligations do not over-ride, or create new, contractual obligations. See Ohio Casualty Company v. Bank One, 1997 WL 428515 (N.D. Ill. 1997). This definition does not support an independent cause of action for failure to perform or enforce in good faith. Rather, a failure to perform or enforce in good faith a right, duty or obligation under a contract, is a breach of contract. The doctrine of good faith merely directs a court towards interpreting contracts within the commercial context in which they are created, performed, and enforced, and does not create a separate duty of fairness and reasonableness which can be independently breached. See PEB Report No. ___. 21. "Incidental damages." 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. Thus, if a licensee must obtain a different computer program because of a breach, the telephone calls and related expenses in arranging for the cover are incidental damages. The cost of the new program may be considered in computing direct damages. 22. "Information." This term embraces a wide range of subject matter, but of course its use in this Act is limited to transactions within the scope of this Act. The term includes information in the form or computer information as well as information that is the subject matter of the transaction and is to be transformed into computer information. As used here, "data" refers to facts whether or not organized or interpreted. The term 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. "Work of authorship" is defined in the Copyright Act and refers to expressive works to which copyright may attach. The federal definition includes literary works, computer programs, motion pictures, compilations, collected works, audiovisual works and the like. A "mask work" is also defined in federal law; the term refers to a representational technology used in creation of semiconductor products. 23. "Informational content." This term refers to information whose ordinary use involves communication of the information to a human being. This is the information people 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 informational content. The term applies even if the person creating the content does not intend others to see or have access to it since, in that case, the preparation nevertheless reflects an intent that the information be perceivable by its creator. 24. "Information processing system." This definition corresponds to the UNCITRAL Model Law on Electronic Commerce. It 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 receiving system is as a computer is not pertinent so long as it provides notice-giving or receipt functions. 25. "Informational rights." This term includes, but is not limited to "intellectual property" rights such as rights under patent, trademark, copyright, trade secret, and mask work law. 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 and the right of publicity. Other laws determine when such rights exist and, as with traditional intellectual property law, the rights need not be comprehensive or exclusive as to all other persons and all uses. The term does not include mere tort claims such as the right to sue for defamation. 26. "License." A license is 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 of grant or restriction 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. As indicate by the preface to this definitions section, however, this treatment is solely for purposes of this Act and does not alter applicable law or 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; sales lack express contractual restrictions on use. Similarly, a "copyright notice" which merely informs the buyer of, the rights and restrictions associated with a first sale under copyright law does not change a 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 issues that are not attributes of a first sale. Whether such terms are enforceable is determined under this Act and applicable federal law. Under copyright law, restrictions in a license that are amt4rially inconsistent with ownership of a delivered copy may result in the holder of the copy not being treated as the copy owner. See DSC v. Pulse Communications, Inc., ___ F.3d ___ (Fed. Cir. 1999). A license is a contract. To create the contractual restrictions that characterize a license, the requirements for an agreement must be met. Language on a copy that restricts use to educational purposes creates a license if the limitation is part of the agreement. A mere copyright notice may or may not be part of an agreement. This Act does not address whether or not such a notice is enforceable under other law. Similarly, 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 though there may be incidental restrictions on use of the information. These casual exchanges are not within this Act because they do not involve a contractual relationship even if a strained analysis might argue that an enforceable promise was made concerning the information itself. 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 of information is not a license under this Act because it is not a contract and because it does not entail a computer information transaction. Whether a license is created does not depend on whether the contract transfers title of a copy. Title to a copy is distinct from questions about the extent to which use of the information is controlled by a license. A license pertains to rights in information and the copy is the conduit, not the focus of the transaction. The analysis in DSC v. Pulse Communications, Inc., ___ F.3d ___ (Fed. Cir. 1999) indicates how the issues may be separable. 27. "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. 28. "Mass-market license" and "mass-market transaction." The definition of "mass market" 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 in cases where the transaction occurs in a retail market available to and used by the general public. The term includes all consumer contracts and some transactions between business in a retail market. It does not include ordinary commercial transactions between businesses using ordinary commercial methods of acquiring or transferring commercial information. 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 also characterized by the fact that, while retail merchants make transactions with other businesses, the predominant type of transaction involves consumers. In a retail market, the majority of the transactions also 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 can pay the stated price. "Mass-market" refers to transactions that involve information aimed at the general public as a whole, including consumers. This does not include information products 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 is a distribution to the general public, courts should rely on the purpose of the definition which is to avoid artificial distinctions among business and consumer purchasers in an ordinary retail market where the purchasers have relatively similar expectations shaped by the retail environment itself. The transactions covered are purchases of true mass-market information and do not include specialty software for business or professional uses, information for specially targeted limited audiences, commercial software distributed in non-retail transactions, or professional use software. The transactions involve information routinely acquired by consumers or that appeals and 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 in this sense 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. 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 the on-line world, consumer contracts are mass-market transactions. However, the definition, by excluding on- line transactions not involving a consumer establishes an important principle. In the new transactional environment of on-line commerce, it is important not to regulate transactions beyond consumer issues. This gives commerce room to develop while preserving consumer interests. 29. "Merchant." This definition follows original Article 2 of the U.C.C. The definition covers a person that holds itself out as experienced even though the person did not actually engage in prior transactions of the type involved to qualify as a merchant. 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 the 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 provisions. In this Act, the term refers primarily to businesses with general knowledge of business practices, rather than to experts in a specific field. Sections 401(a) and 401(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. 30. "Non-exclusive license." This is the most common type of commercial license. The licensor grants limited rights and does not foreclose itself from making additional licenses involving the same subject matter and general scope. A non- exclusive license has been described as nothing more than a promise not to sue. While it often has more proactive commercial aspects in modern commerce, a license does not convey property rights to the licensee. 31. "Present value." This definition corresponds to original Section 2A-103 and Section 1-201(37)(z) of the Uniform Commercial Code, but modifies the rules to cover present valuation of performances other than payments. 32. "Published informational content." This term refers to the type of information most closely associated with free expression. In older technology, this is the material of newspapers, books, motion pictures and the like. Just as in that context, in the context of computer information transaction, informational content is within this term when distributed to the public and intended to communicate knowledge, sounds, or other experiences to a human being, rather than simply to operate a machine. The term includes interactive content since, in interactive products, 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 does not include information provided in a special relationship of reliance. That phrase, which is also used in Section 404, has the same meaning in both contexts. It excludes transactions in which the provider knows that the particular licensee plans to rely on the particular data that the licensor provides and expects that the licensor will tailor the information to the particular client's business or personal needs. The relationship arises only with respect to persons 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 standardized form even if those who receive the information