I was sitting in my contracts class yesterday, listening to one of my erudite classmates discuss ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996), which deals with shrink-wrap licensing in software purchases. I was happily following along with the conversation until the professor began discussing why he felt the court erred in considering the Uniform Commercial Code to be applicable to the case. His contention is that the UCC’s definition of “goods” specifically pertains to tangible objects, and because a computer database is intangible, software purchased in a store such as Best Buy should not be considered a “good.”Here is the definition of “good” from the UCC:
(1) “Goods” means all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale other than the money in which the price is to be paid, investment securities ( Article 8 ) and things in action. “Goods” also includes the unborn young of animals and growing crops and other identified things attached to realty as described in the section on goods to be severed from realty (Section 2-107).U.C.C. § 2-105
I decided to try to clear up my confusion by asking a question in class, and the following dialogue resulted:
Me: I don’t quite understand how this database isn’t a “good” under the UCC. If the store sold the defendant a stack of phone books — which is essentially what we have here, only in digital format — that would be considered a “good,” right?
Professor: Well, a stack of phonebooks can’t be copyrighted, right?
Me: Well, okay, say you have a stack of phone books that have been organized in some unique, proprietary fashion. Why is it any different whether it comes in the form of books, or in the form of a DVD where the same data is sold in a digital format?
Professor: Well, software isn’t tangible… the UCC is only for moveable goods…
To be fair, I forget the rest of his explanation. What I do remember is that it left me very unsatisfied, and I don’t think that I was the only one since one of my colleagues spoke up next:
Student: Well, in that case, couldn’t you say the CD that the data comes on is the tangible part of the software, and should count as a “good?”
Professor: The only way that you could say it’s tangible is if you cut someone’s throat with the CD… or throw it at the cat.
He got some laughs. I was still left confused, however, so I did some research on the topic today. The first thing that I found out is that one of the elusive amendments we’ve been told of specifically classifies software as a “good.” I also happened across Advent Sys. v. Unisys Corp., 925 F.2d 670 (3d Cir. 1991), which wrestles with the issue of whether software should be considered a good.
Computer programs are the product of an intellectual process, but once implanted in a medium are widely distributed to computer owners. An analogy can be drawn to a compact disc recording of an orchestral rendition. The music is produced by the artistry of musicians and in itself is not a “good,” but when transferred to a laser-readable disc becomes a readily merchantable commodity.Id. at 675.
The court goes on to find that software is a “good” under Pennsylvania’s version of the UCC. What does that statute say, you ask?
(a) “GOODS.” –”Goods” means all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale other than the money in which the price is to be paid, investment securities ( Division 8 ) and things in action. “Goods” also includes the unborn young of animals and growing crops and other identified things attached to realty as described in section 2107 (relating to goods to be severed from realty; recording).13 Pa.C.S. § 2105
It seems that the courts reasoning is certainly applicable to the UCC, based on the similar wording of the PA statute. Unless I’m otherwise convinced, I plan on considering software to be a good under the UCC.Feel like convincing me?
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I am, as they say, not a lawyer, but I googled upon this blog post and found it very interesting.
More and more software is sold these days without any physical media at all. Think, in particular, of the App Store for iPhone/iPad.
I would however still think of it as a “tangible good” even if the only way you can touch it is on your touch-screen. I think it’s more that the language used to describe or define “goods” is out of date.
Certainly there is a difference between a database I build for a customer (as a service) and a bag of Fritos. But is there really a difference, beyond taste, between Angry Birds Rio and a bag of Fritos?
And if there is, to whose advantage is that difference?
Anyway, the thing that brought me here was an investigation into an economic zone in the EU where significant tax breaks are offered on income from the sale of tangible goods produced in the area. It’s basically a job-creation subsidy, but if software isn’t a tangible good they would refuse the subsidy to a very desirable class of job.
I really don’t think they’d do that on purpose, but I imagine they would do it out of inertia.
If you’re aware of any precedent on that in the EU I’d love a link. Also: nice blog.