Opinion ID: 852355
Heading Depth: 2
Heading Rank: 1

Heading: Does the U.C.C. Govern this Agreement?

Text: Indiana's U.C.C. Article 2 applies to transactions in goods. Ind.Code. § 26-1-2-102 (2008). 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 (IC 16-1-8.1) and things in action. Ind.Code § 26-1-2-105 (2008). Where close questions arise about whether a transaction involved the transfer of goods or performance of services, courts commonly choose one or the other by asking what was the predominant thrust. Compare, e.g., Ogden Martin Systs. of Indianapolis, Inc. v. Whiting Corp., 179 F.3d 523, 530-531 (7th Cir.1999) (predominant thrust of installation of solid waste handling cranes was the goods), and Insul-Mark Midwest, Inc. v. Modern Materials, Inc., 612 N.E.2d 550, 556 (Ind. 1993) (predominant thrust of coating of screws was the service). Arguably, software could be treated as a good, or not, depending on how it is created or transmitted. Where software is contained in a tangible medium, especially when produced on a mass scale, courts have had a difficult time placing software into the established categories. Unsurprisingly, this challenge has prompted suggestions that a new legal paradigm may be needed. The National Conference of Commissioners of Uniform State Laws has been working on this issue for some time with what was originally called U.C.C. Article 2B, later renamed the Uniform Computer Information Transaction Act after the American Law Institute withdrew from the project. Maureen A. O'Rourke, An Essay on the Challenges of Drafting a Uniform Law of Software Contracting, 10 Lewis & Clark L.Rev. 925, 929-30 (2006). The ALI has subsequently launched a project titled Principles of the Law of Software Contracts, to accomplish a similar end. [7] Happily, this case does not include any of the aspects (like the legal effect of an agreement to transfer software on a tangible medium) that have complicated resolution of the U.C.C.'s applicability in some cases reported in the literature. We thus can address the goods/services question rather cleanly. Our Court of Appeals has decided at least two cases on whether software is a good. Piece of America points us to a decision from two decades ago, Data Processing Servs., Inc. v. L.H. Smith Oil Corp., 492 N.E.2d 314 (Ind.Ct.App.1986). [8] Data Processing Services involved custom software used in the operations of an oil company. The court determined that the sale for customized computer software was not a sale for goods. It said the transaction was more analogous to a client seeking a lawyer's advice or a patient seeking medical treatment. Id. at 319. It further stated: While a tangible end product, such as floppy disks, hard disks, punch cards or magnetic tape used as a storage medium for the program may be involved incidentally in this transaction, it is the skill and knowledge of the programmer which is being purchased in the main, not the devices by which this skill and knowledge is placed into the buyer's computer. The means of transmission is not the essence of the agreement. Id. The Court of Appeals treated the agreement as a contract for services because that is how the language of the contract suggested the parties themselves understood it; they used terms such as to act, and treated the object of the contract as the programmer's knowledge, skill, and ability. It also relied on common law principles of implied warranty of skill and diligence by those who hold themselves out to the world as possessing skill and qualifications in their respective trades or professions. Id. at 319-20. In a more recent case, the Court of Appeals considered a contract that licensed one software company to use another's software modules in its own end product. Olcott Int'l & Co., Inc. v. Micro Data Base Sys., Inc., 793 N.E.2d 1063, 1071 (Ind.Ct.App.2003). In concluding that U.C.C. Article 2 applied to the contract, the Court of Appeals relied on both parties' acquiescence in that conclusion and reasoned that because the agreement involved pre-existing, standardized software modules, they were goods rather than services. Id. On the surface, these cases might suggest that customized software is a service while pre-made software is a good, but when courts try to pour new wine into old legal bottles, we sometimes miss the nuances. It would be a mistake, for instance, to treat software as a good simply because it was contained in a tangible medium that fits within that category. This would conflate the sale of a book with the sale of its intellectual content, suggesting that the purchaser of the book might be buying a right to general use of the expressions contained in the volume. A website created under arrangements calling for the designer to fashion, program, and host its operation on the designer's server is neither tangible nor moveable in the conventional sense. To be sure, one can copy a website using tangible, movable objects such as hard drives, cables, and disks. These objects are in themselves just as certainly goods, but it does not necessarily follow that the information they contain classifies as goods as well. The arrangement between POA and Gray Loon contemplated a custom design for a single customer and an ongoing hosting relationship. As such, conventional predominant thrust doctrine suggests that the U.C.C. did not apply.