Software Products: As Goods for Sale Or a License?

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

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 “several 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), Northern California (San Jose) declined to undertake the Softman evaluation of 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 identity positioned on the vendor (Stargate Software Inc.) in the above agreements, the transaction have to be characterized as a license, in place of a sale.”

Indeed, the preamble of the “EULA” states that “Adobe offers 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 using Adobe and its suppliers.”

In Stargate Software Inc. Supra, the San Jose Court 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 case,” which simplest granted the cease person with “a license to apply for the software program” and maintained “severa regulations on the name concerning 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. However, Adobe additionally argued therein that “the ‘EULA’ requires the production of the transaction as a license in preference to a sale.”

The Los Angeles Court found that Softmanwas now not sure via the “EULA” because 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 setup method. But Softman, a Los Angeles-based business enterprise that allotted pc software program products usually through its website, had now not attempted to load the sold software.


Citing some of the 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 because Softman became no longer sure using the “EULA” because 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 an unmarried reproduction of the software program, with documentation, for an 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 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 giving up users governed using “EULA,” but as a substitute reseller governed by using “OCRA.”

One of Adobe’s contentions in Stargate, supra, was that it retained ownership of its software, the accompanying documentation, and all different associated materials under the “OCRA.”

But Stargate argued that language in Adobe’s “OCRA” contained phrases 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, leading software development and publishing employer, over Stargate, a reduction software program distributor, utilizing focusing its evaluation on restrictions on identifying 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 Programs 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 the simplest ownership, but also 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 is more advantageously characterized as “goods” rather than a license.

Jeffery D. Silvers
Love and share my articles, I will be happy to react on it ! Spent 2002-2009 promoting weed whackers in Edison, NJ. Earned praise for importing junk food for fun and profit. Spent 2001-2006 exporting teddy bears in Atlantic City, NJ. Had some great experience investing in tattoos in Fort Walton Beach, FL. Spent 2002-2007 selling action figures in the aftermarket. Enthusiastic about working on basketballs on the black market.