Software Products: As Goods for Sale Or a License?

A sale contract in a dealer’s order shape involves a software software to be brought or shipped in compact disc (CD-ROM) for a stated rate, payable for the duration of the transaction, and with a perpetual subscription term to an cease user. License?

Is the software program application, arguably a licensing settlement, “items” beneath the California Commercial Code? Is software sold or certified? Section 2105(1) thereof defines “goods” as “all matters (which include mainly manufactured items) that are movable on the time of identity to the agreement on the market different then money wherein the charge is to be paid, investment securities (Division eight) and things in motion.”

In SoftMan Products Company, LLC v. Adobe Systems Inc., 171 F. Supp. Second 1075 (C.D. Cal.2001) the Central California District Court cited that “a number of courts have held that the sale of software is the sale of a terrific within the meaning of Uniform Commercial Code.”

License Not Sale Of Software:

In Adobe System Inc. V. Stargate Software Inc., 216 S. Supp, 2d a hundred and five (N.D Cal, 2002), the Northern California (San Jose) declined to undertake the Softman evaluation of the Central California (Los Angeles) District Court, and reached a special conclusion.

It concluded that “based totally on the clear and unambiguous language of the relevant contracts (Off or On Campus Educational Reseller Agreement [“OCRA”] and End User License Agreement [“EULA,”] coupled with the multiple restrictions on identify positioned on the vendor (Stargate Software Inc.) in the above agreements, the transaction have to be characterised as a license, in place of a sale.”

Indeed, the preamble of the “EULA” states that “Adobe offers to you a non-unique license to use the Software and Documentation, provided that you agree to the following.” And paragraph 2 of the “EULA” states that “the software program is owned by means of Adobe and its suppliers.”

The San Jose Court, in Stargate Software Inc. Supra, followed its personal evaluation in Adobe Systems, Inc. V. One Stop Micro, 84 F. Supp. 2d 1086, 1092 ( N.D. Cal 2000) to wit: ” due to the considerably comparable nature and terms of the EULA in each cases,” which simplest granted the cease person with “a license to apply the software program” and maintained “severa regulations on name with respect to the cease user.”

A license isn’t always a “desirable” that may be bought below the California Commercial Code.

Sale Not License Of Software:

In the Softman case, supra, the Central District of California Court in Los Angeles arrived at a distinct conclusion, despite the fact that Adobe additionally argued therein that “the ‘EULA’ requires production of the transaction as a license in preference to a sale.”License?

The Los Angeles Court found that Softmanwas now not sure via the “EULA” due to the fact there was no assent to its terms. The “EULA” agreement changed into not enclosed with the character Adobe software disk, and customers have been asked to comply with its phrases as part of the set up method. But Softman, a Los Angeles-based business enterprise that allotted pc software program products usually thru its website, had now not attempted to load the software that it sold.

Citing some of courts, the Los Angeles Court cited the characterization of Adobe’s “EULA” as “shrinkwrap” licenses that are invalid, unconscionable, and/or unacceptable contracts of adhesion that require explicit assent by the customer to be valid, under Uniform Commercial Code § 2-207.

But it declined to reach the query of the general validity of “shrinkwrap” licenses due to the fact Softman become no longer sure by means of the “EULA” considering the fact that there has been no assent to its terms.

It but concluded “that the instances surrounding the transaction strongly propose that the transaction is in fact a sale as opposed to a license.” It similarly indexed the “indicia” of a sale of products alternatively a license, to wit: “The purchaser usually obtains a unmarried reproduction of the software program, with documentation, for a unmarried price, which the acquisition can pay at the time of the transaction, and which constitutes the whole charge for the ‘license,’ (and) the license runs for an indefinite time period without provisions for a renewal.”

Restrictions On Title vs. Substance of Transaction:

SoftMan Products Company turned into a distributor of pc software products as well as Stargate Software Inc. Both had been no longer give up users governed by means of “EULA,” but as a substitute resellers governed by using “OCRA.”

One of the contentions of Adobe in Stargate, supra, was that it retained ownership of its software, the acompanying documentation, and all different associated materials pursuant to the “OCRA.”

But Startgate argued that language in Adobe’s “OCRA” contained phrase such as “owned with the aid of reseller” and ” repurchase” through Adobe. Still, the San Jose Court in “Stargate, supra, concluded that “extra languages indicated that the ‘OCRA’ best confers a license.”

Thus, the San Jose Court inside the Silicon Valley, in Stargate, supra, preferred Adobe, a leading software development and publishing employer, over Stargate, a reduction software program distributor, by means of focusing its evaluation on restrictions on identify that restriction the reseller’s capability to distribute Adobe’s software program.

On the alternative hand, the Los Angeles Court some distance from the Silicon Valley in “Softman supra, preferred SoftMan, a Los Angeles-based totally pc software distribution organization, over Adobe, by way of focusing its evaluation on the substance of the transaction, the above-stated indicia of sale of products.

Commentators like Prof. Raymond Nimmer, The Law of Computer Technology (1992), and David A. Rice, Licensing the Use of Computer Program Copies and the Copyright Act First Sale Doctrine, 30 Jurimetrics J. 157 (1990) have urged courts to look at the substance as opposed to the form of licensing agreements.

As Prof. Nimmer has written: “The pertinent difficulty is whether or not, as in a hire, the person may be required to go back the reproduction to the vendor after the expiration of a particular period. If not, the transaction conveyed now not simplest ownership, but additionally transferred ownership of the copy.”


A sale of goods or a license? The two conflicting analyses mentioned above are irreconcilable, whether or not the customer is a reseller or stop user. For the shoppers, software program merchandise are more advantageously characterized as “goods,” rater than as license.

Jeffery D. Silvers
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