(appendix a)

This Document is excerpted from the

UNIFORM COMMERCIAL CODE

ARTICLE 2B

LICENSES

and is considered to be an integral part of the development agreement.

SECTION 2B-6187. DEVELOPMENT CONTRACTS.

• (a) In this section,, "client" means a person that hires a developer, and "developer" means a person hired or commissioned to create or develop software for a client but does not include an employee of a client.
• (b) If an agreement requires development of software, as between the developer and the client, the following rules apply:
• (1) Unless an authenticated record provides for a different result, the developer retains ownership of the informational property rights to the extent provided under applicable informational property law, but the client receives a nonexclusive license to utilize the software in any manner consistent with the agreement.
• (2) If an authenticated record or the provisions of applicable informational property rights law provide that ownership of informational property rights in the software passes to the client, but does not otherwise deal with the following issues, the following rules apply:
• (A) If the contract is not a work for hire, ownership of the completed software vests in the client under Section 2B-501, but revests in the developer if the developer cancels for breach of contract before the information is delivered to the client.
• (B) The developer retains any ownership reserved to it under applicable law and the right to use methods, components, or code developed before or independent of the contract, or developed during the duration of the contract but not required by the contract to be delivered to the client.
• (C) The client has a nonexclusive license to use the components or code delivered as part of the software to which it did not obtain ownership under applicable law.
• (c) Neither party has the right to use confidential information of the other party which was identified as confidential except as provided in the agreement.
• (d) Language in an authenticated record is sufficient to indicate an intent to place ownership in the designated party if it states "All right, title, and interest in the software will be owned by [named party]", or words of similar import.
• (e) On request of the client made in a record delivered to the developer, the developer shall notify the client if it used independent contractors or information provided by other third parties and shall provide the client with a statement that either confirms that all applicable informational property rights have been obtained or will be obtained, or that it makes no representation about those rights beyond any stated in the agreement. The statement must be made within 30 days after the request is received unless the time for performance of the development contract is less than 30 days, in which case the statement must be before completion of performance.

Notes:

1. Context and Scope. This section deals with an important area of software contracting where existing property rights rules are uncertain and often litigated. The Section does not deal with the underlying property rights rules, but provides default provisions associated with the agreement that give a balanced basis on which contracts of this type can be negotiated. This is an area affected by federal intellectual property law. Some development contracts are extensively negotiated contracts, but others are very informal relationships. In many cases, the licensor-developer is a smaller firm.

The section applies only to development contracts relating to computer software. It creates an implied license for a client that does not have documentation capable of obtaining ownership and, as a balance, creates an implied license in development tools for a developer.

2.Failed Transfer of Ownership. Subsection (b)(1) deals with when the parties intended ownership of informational property rights to pass to the client, but that transfer was not achieved under applicable law. In most cases, this stems from copyright law which provides that, unless there is an express written transfer of copyright, copyright ownership remains in the developer, rather than the client. Trade secret and patent law likewise create situations in which ownership may not be effectively transferred. This rule states an important premise giving a significant benefit to the client-licensee. The default provision does not apply, however, if the parties did not intend a transfer of ownership.

3.Transferred Ownership. Subsection (b)(2) deals with cases where the contract gives ownership of the intellectual property in the program to the client. The theme is that ownership transfers in all code developed for and included in the program and that no conditions limit the licensee’s use. However, two interests are balanced in the event that the contract does not deal with them: 1) the developer’s right to continue to use general applicability code and tools and 2) the licensee’s rights in code developed outside the project which are not clearly transferred to it. In each case, a split between ownership and a non-revocable license is used to give each party rights in the materials as a default rule. The developer retains ownership of previously developed materials, but the licensee has a license to use them.

• a. Vesting Time. Except for a work for hire, ownership vests according to the provisions of Section 2B-501. This creates the earliest feasible point and time of transfer for the client.
• b. Components. Unless the contract provides otherwise, subsection (b)(2) gives a balanced treatment of methods and useful elements related to the program, but also potentially essential to the developer’s on-going business. The Developer retains any ownership interests that are reserved to it under other applicable law, including copyright and other intellectual property law. In many cases, a developed program delivered to a client can be analogized to a compilation of code or a collective work in which the client obtains ownership of the whole, but ownership of the separate elements remains in others (including the developer). This is a property law issue and, often, a federal law issue. This Section does not alter the result when applicable.

The developer also retains the right to use methods, components or code developed before or independent of the contract, or developed during the contract but not required by the contract to be delivered to the client. The transfer deals with ownership of the program itself and does not cover ownership questions about tools or methods developed by the developed during the project, but not included or to be included in the deliverable (e.g., the completed program). The right to use these work product elements remain in the developer and are critical elements of its professional assets, unless of course, the contract expressly provides that the client acquires rights in them.

4.Confidential Information. Under subsection (c), both parties are obligated to protect the confidential material of the other party to the extent that the material is 1) actually confidential, and 2) identified as such to the other party.

5.Language. Subsection (d) provides safe language for effectuating a transfer. The terminology is designed to clearly indicate that more than a transfer of a copy was contemplated.The language here deals solely with creating the transfer. The timing and nature of the rights transferred is governed elsewhere, including in 2B-501(a) and, when applicable, other law.

6.Identifying Contractor Use. Subsection (e) provides important protection for a licensee not found in current law. The section stems from a problem created under federal intellectual property law, especially as to copyright ownership. Copyright law allows independent contractors to retain copyright control of their work unless they expressly transfer it. The licensee, even if unaware of the contractor's rights, is subject to them since intellectual property law does not contemplate good faith buyer protection. The section places an obligation on the developer of software to respond to a request of the licensee. This does not supplant warranties against infringement or warranties of title, but sets out a method to potentially avoid those problems.