UCC 2B/UCITA Resurrected–ALI’s Principles of the Law of Software Contracts

By Eric Goldman

Let me start with two relatively uncontroversial propositions:

1) UCC Article 2, drafted principally in the 1950s, was designed to govern the sale of tangible items, not software

2) Accordingly, Article 2 fits awkwardly when applied to “intangible goods” like software

Given this, it seems eminently logical that the UCC should have an Article 2 complement written specifically for intangible goods. This premise animated the efforts to draft the proposed UCC Article 2B back in the 1990s. It sure seemed like a good idea at the time. The project may have made some poor drafting decisions (particularly the decision to extend 2B to apply equally to both functional software and “inert’ data, which makes logical sense but also quickly expanded the effort’s enemies), but the project was ultimately doomed by politics.

When the 2B project died, in its wake it left the same perceived doctrinal hole and a very large draft document. That draft morphed into UCITA, a draft with most of the same objections as UCC 2B and fewer supporters. I was always amazed that anyone adopted UCITA at all, but the early adopters–Maryland and Virginia–now look a little foolish. They are stuck with a highly complex law that is non-standard compared to the rest of the nation; and numerous states adopted anti-UCITA laws making the Maryland/Virginia law inapplicable to their residents. The contracts I’ve done with Maryland/Virginia companies invariably exclude the application of UCITA; and I’m reasonably confident that UCITA causes Maryland and Virginia companies to routinely lose negotiations over venue selection clauses in their contracts. With no one invested in UCITA and lots of remaining resistance to it, it just seems like a matter of time before Maryland and Virginia repeal UCITA.

Meanwhile, perhaps the third time is a charm. The American Law Institute is trying again to develop a law to govern software contracts in a project entitled “Principles of the Law of Software Contracts.” The reporters are Robert Hillman from Cornell and Maureen O’Rourke from BU.

The project has two interesting architectural aspects. First, it purports to apply only to software, not content, so it seeks to avoid the topical sprawl that doomed the 2B/UCITA effort. Second, as a “Principles” project, it is not intended to be a model law, and there’s no expectation that a final draft will be proposed to any legislature for adoption. Of course, this raises the question about the value of the effort–if it’s not a model law, and it’s not a treatise, what is it, and how will it help?

I skimmed through the first draft and, despite the amorphous purpose, it struck me as a thoughtful starting point for discussion on an important topic. More work needs to be done, and I will need to organize my thoughts about some of the points that didn’t make sense to me. Fortunately, there’s no immediate rush. ALI’s projects tend to take several years, so we’ll hear more on this project in the next few years.

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