1. The Uniform Computer Information Transaction Act ('UCITA') §2B-403 cmt 2 (15 October 1999 Proposed Official Draft ). ('The implied warranty of merchantability comes from one of three different legal traditions associated with computer information transactions. One, the source of this warranty, is the Article 2 world of the sale of goods and focuses on the quality of the result (product) delivered, establishing an implied assurance that this quality will conform to ordinary standards for products of that type. The second, from common law dealing with licenses, services and information contracts, focuses on the process or performance effort, rather than the result, establishing standards such as that the work will be performed in a workmanlike manner. The third, from common law, pertains to services and information contracts in some states, rejecting any implied obligation in a contract other than one involving a special relationship of reliance').

2. Section 14(2), Sales of Goods Act 1979, as amended in 1994 (1979, c. 54); U.C.C. § 2-314 (1998 Official Text).

3. Section 14(3), Sales of Goods Act 1979; see Slater v. Finning Ltd., [1997] A.C. 473. (holding that implied condition for fitness was not breached where the failure of the goods to meet the intended purpose arises from an abnormal feature or idiosyncrasy, not made known to the seller by the buyer); U.C.C. § 2-315 (1998 Official Text).

4. Section 13, Supply of Goods and Services Act 1982, as amended in 1994 (1982, c. 29); Restatement (Second) of Torts § 299A (1965)'one who undertakes to render services in the practice of a profession or trade is required to exercise the skill and knowledge normally possessed by members of that profession or trade…'; Williston, A TREATISE ON THE LAW OF CONTRACTS, § 1012C (3d ed. 1961); Milau Assoc., Inc. v. North Avenue Devel. Corp., 42 N.Y.2d 482, 398 N.Y.S.2d 882, 368 N.E.2d 1247 (N.Y. 1977).

5. See Section 4(1), Supply of Goods and Services Act 1982.

6.See Supply of Goods and Services Act 1982.

7.See infra [6] The Cases in the US [6.1] Different Tests for Classification

8. See infra [8] The Effect of the Enactment of the UCITA.

9.See later discussion.

10. Restatement (Second) of Torts § 552 (1977) ' One who, in the cause of his business, profession or employment, or in any other transaction in which he has pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance on the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information.'

11. See id.

12. See id.; see discussions below.

13. Stratton Oakmont, Inc., v. Prodigy Service Company, 63 U.S.L.W. 2765, 23 Media L. Rep. 1794 (N.Y. Sup. Ct.1995)(concerning defamatory statement); Cubby, Inc. v. Compuserve Inc. 776 F.Supp. 135 (S.D.N.Y. 1991)(concerning defamatory statement).

14 . Cardozo v. True, 342 So.2d 1053, 1055-56 (Fla. App., 342)('The definition of 'goods' under the U.C.C. is sufficiently broad to include books.' 'As such Ellie's (a retail book dealer) is held to have impliedly warranted the tangible, physical properties; i.e., printing and binding of books. But, at this point it becomes necessary to distinguish between the tangible properties of these goods and the thoughts and ideas conveyed thereby.' 'It is unthinkable that standards imposed on the quality of goods sold by a merchant would require that merchant, who is a book seller, to evaluate the thought processes of the many authors and publishers of the hundreds and often thousands of books which the merchant offers for sale.'); Lerman v. Flynt Distributing Co., 745 F.2d 123, 139 (2d Cir. 1984), cert denied, 471 U.S. 1054, 105 S.Ct. 2114, 85 L.Ed. 2d 479 (1985)(concerning defamatory publication 'Obviously, the national distributor of hundreds of periodicals has no duty to monitor each issue of every periodical it distributes. Such a rule would be an impermissible burden on the First Amendment. At the same time a distributor as an integral part of the movement of information from the creator to the reader--the distributor here was to receive 46% of the profit from the sale of the magazine--cannot be entirely immune from liability. When a distributor acts with the requisite scienter in distributing materials defaming or invading the privacy of a private figure it must be subject to liability.') ; Lerman v. Chuckleberry Publishing, Inc., 521 F.Supp. 228, 235 (S.D.N.Y. 1981) (concerning defamatory publication 'With respect to distributors, the New York courts have long held that vendors and distributors of defamatory publications are not liable if they neither know nor have reason to know of the defamation.'); see Restatement (Second) of Torts § 581 (1976). cmt. d 'News dealers. Under the rule stated in this Section, a news dealer is not liable for defamatory statements appearing in the newspapers or magazines that he sells if he neither knows nor has reason to know of the defamatory article. The dealer is under no duty to examine the various publications that he offers for sale to ascertain whether they contain any defamatory items. Unless there are special circumstances that should warn the dealer that a particular publication is defamatory, he is under no duty to ascertain its innocent or defamatory character. On the other hand, when a dealer offers for sale a particular paper or magazine that notoriously persists in printing scandalous items, the vendor may do so at the risk that any particular issue may contain defamatory language.'; Cubby, Inc. v. Compuserve Inc. 776 F.Supp. 135 (S.D.N.Y. 1991).

15. Gutter v. Dow Jones, Inc., 490 N.E.2d 898 (Ohio 1986) (holding that a publisher of the Wall Street Journal is not liable for negligent misrepresentation to a subscriber who relied on the false statement of fact).

16.Id. at 899-900.('The general view is that '[n]o action for damages lies against a newspaper for merely inaccurate reporting when the publication does not constitute libel.'); Langworthy v. Pulitzer Pub. Co. (Mo.1963), 368 S.W.2d 385, 390; 58 Am.Jur.2d (1971) 148, Newspapers, Periodicals & Press Assns., Section 22, 'In the absence of a contract, fiduciary relationship, or intentional design to cause injury, a newspaper publisher is not liable to a member of the public to whom all news is liable to be disseminated for a negligent misstatement in an item of news, not amounting to libel, published by the publisher, unless he wilfully originates or circulates it knowing it to be false, and it is calculated to and does, as the proximate cause, result in injury to another person.'

17.Gale v. Value Line, Inc., 640 F.Supp. 967 (D.R.I.1986) (holding that the publisher of Value Line is not liable to the subscriber who purchased warrants in reliance on incomplete summary of warrant).

18.First Equity Corp. of Florida v. Standard & Poor's Corp., 869 F.2d 175 (2d Cir. 1989).

19.See Jaillet v. Cashman, 189 N.Y.S. 743 (N.Y. Supp. Ct. 1921), aff'd, 194 N.Y.S. 947 (N.Y. App. Div. 1922), aff'd, 139 N.E. 714 (N.Y.1923)(holding that a stock ticker is analogous to a newspaper and a publisher of a ticker is not liable for publishing the erroneous report. A customer in a broker's office having ticker service suffered losses after relying upon a false report on a stock ticker); but see Rosenstein v. Standard and Poor's Corp., 636 N.E.2d 665 (Ill App. 1 Dist. 1993). (holding that it may be possible for an option trader to recover the loss against a company which erroneously incorporated the closing price of a particular stock in indexes. The company was an official source for calculating and disseminating the closing values of indexes); see also De La Bere v. C.A. Pearson, Ltd, [1908] 1 K.B. 280. (holding that the proprietors of a newspaper, which advertises the offering of advice with reference to investment, is responsible for taking reasonable care to name a good stockbroker to a reader who wished to know of one).

20.Ultramares Corporation v. Touche, 255 N.Y.170, 182-183, 174 N.E. 441, 446 (N.Y. Ct. App.1931).

21. 520 N.Y.S.2d 334 (N.Y.City Civ. Ct. 1987).

22.See supra note 10; Accusystems, Inc. v. Honeywell Information Systems, 580 F.Supp. 474 (S.D.N.Y. 1984), (holding that a cause of action for negligent misrepresentation is not recognised unless there is a special relationship of trust of confidence between the parties. The buyer-seller relationship was not enough to support a cause of action); Phoenix Service Technologies, Inc., and Phoenix Technologies, Inc. v. Quotron Systems, Inc 5 CCH Computer Cases¶47,250, 67, 537 U.S. District Court, Eastern District of Pennsylvania. Civil Action No. 94-2068. April 19, 1995, (holding that the special relationship required for a cause of action in fraud is based on a duty to disclose, which arises when one party has superior knowledge not readily available to the other and knows that the other is acting on the basis of mistaken knowledge).

23. (1999 Official Text).

24. [1964] A.C. 465 (H.L.).

25.Id. at 531.

26.Id. at 486; Raritan River Steel Co. v. Cherry, Bekaert & Holland, 367 S.E.2d 609 (N.C. 1988).

27.Ultramares Corporation v. Touche, 255 N.Y.170, 182-183, 174 N.E. 441, 446 (N.Y. Ct. App.1931).

28. 367 S.E.2d 609 (N.C. 1988).

29. [1964] A.C. 465 (H.L.(E.)).

30. 255 N.Y. 175, 179, 174 N.E. 442, 444 (N.Y. 1931).

31. [1990] 2 A.C. 605.

32. Sale of Goods Act, 1893, Section 4.

33. Lee v. Griffin (1861) 1B & 272.

34. Section 4, Sale of Goods Act 1979.

35. Wharton Management Group v. Sigma Consultants Inc., 1990 WESTLAW 18, 360 (Del. Super. Ct. 1990), aff'd, 582 A.2d 936 (Del. 1990).

36. c. 58, Sections 2 and 5.

37.Accusystems, Inc. v. Honeywell Information Systems, 580 F.Supp. 474 (S.D.N.Y.1984).

38.See E. ALLAN FARNSWORTH, FARNSWORTH ON CONTRACTS §8.16 at 442- 443. (1990).

39.See WILLIAM D. HAWKLAND, UNIFORM COMMERCIAL CODE SERIES §2-105:01 (1995); See RAYMOND T. NIMMER, THE LAW OF COMPUTER TECH. §2(B6.02 at 6-4 (1992). 1997 to 1992.

40.See Supply of Goods and Services Act 1982.

41.See supra note 1.

42.See Supply of Goods and Services Act 1982.

43.See [6] The Cases in the US.

44.Lee v. Griffin (1861) 1B & 272; Robinson v. Graves, [1935] 1 K.B. 579.

45.Id., at 275. See U.S. case in Schmidt v. Rozier, St. Louis Court of Appeals, Missouri. Dec. 22, 1906 (following Lee v. Griffin. '[T]he subject matter of the contract being a coat and vest, chattels, to be afterwards delivered, it is the opinion of the court that the cause of action is for goods sold, etc., notwithstanding the peculiar pattern of the garments mentioned, and it therefore falls within the statute of frauds.').

46.Robinson v. Graves, [1935] 1 K.B. 579.

47. [1935] 1 K.B. 579.

48.Id. at 587.

49.Lee v. Griffin, (1981) 1B & 277.

50. [1952] 1 Q.B.D. 15.

51.See [2] Purpose of Classification. [2.2] Evidence

52.See NIMMER, supra note 39, 6.02 at 6-9.

53.Vault Corp. v. McQuaid Software Ltd., 655 F. Supp.750 (E.D.La. 1987) aff'd 847 F.2d 255 (5th Cir. 1988) (holding that the Louisiana statute validating the prohibition on reverse engineering conflicts with federal policy and is unenforceable).

54.See supra note 14.

55. CHRIS REED, Liability, COMPUTER LAW 86, n8 (3d Ed.1996). (arguing that there are two contracts, one is the contract supplying the package, which is between the dealer and the user and could well be a sale, and the other is the licence of intellectual property rights granted by the software house which is not a sale. 'Where the software house supplies the package directly to the user it will be both licensing and supplying; here there is no reason why the supply element of the transaction should not be a sale.' 'It is analogous to the seller of a prerecorded cassette tape arguing that the tape is not defective because the only fault is that the music is distorted whilst the tape itself is perfect. The reason that the purchaser pays more for a prerecorded than a blank tape is precisely because it has information (music) on it.' It may be more appropriate to refer to 'two elements' of the subject matter of the contract than to two contracts. It may be noted that the difference between computer programs and the music tape is that the computer program can be 'defective' in the sense that it does not function, even if the content and the physical medium are both in their intended condition and not 'distorted'.

56. Raymond T. Nimmer, Breaking Barriers: The Relation Between Contract and Intellectual Property Law (1998) <http://www.2BGuide.com/docs/rncontract-new.html> (arguing that there are three basic issues in an information contract; 1) Product Issues: Defining the informational subject matter of the transaction, what rights are transferred or withheld, and what fee, loyalty, or price is charged for that product, 2) Liability Issues: Defining the allocation of risk for errors, defects, third-party claims for libel, defamation or the like, associated with the information subject matter, 3) Performance Issue: Defining how the transaction will be performed, when it will be completed, what laws apply and other issues associated with establishing the relationship between the parties. He also argues that copyright or other intellectual property law does not control the second and the third issue).

57. [1943] 1 K.B. 527.

58. Id. at 527.

59. [1934] 1 K.B. 46.

60. Id. at 55.

61. [1995] F.S.R. 616, 652.

62.Id. at 652.; See Micron Computer Systems Ltd. v. Wang (U.K.) Ltd., unreported 9 May 1990 (Q.B.D), (holding that in the computer industry, the occasional failure of the system is normal and to be expected. After determining that a 'computer system' was a good, the court found that the system was fit for the purpose for which it was sold and was merchantable.)

63. [1995] F.S.R. 686, [1996] 4 All E.R. 481.

64. [1995] F.S.R. 686, [1996] 4 All E.R. 481.

65. [1995] F.S.R. 616, 650.

66. [1943] 1 K.B. 527.

67. [1995] F.S.R. 616, 650.

68. [1995] F.S.R.686, [1996] 4 All E.R. 481.

69. Colin Tapper, 'Some Aspects of Contractual Licences for Software' CONSENSUS AD IDEM 283, 286 (1996).

70. [1983] 2 N.S.W.L.R. 48.

71.Id. at 51.

72.Id. at 54.

73. 6 September 1988 (unreported).

74. However, this comment is not necessarily stating that there were two contracts, one for physical manifestation and the other for the grant of license involved in the transaction between licenser and licensee, as stated in Beta Computers (Europe) Ltd. Adobe Systems (Europe ) Ltd., [1996] S.L.T. 604. ('It is submitted with respect that this is correct, and that where software is licensed there are effectively two contracts between the licenser and licensee: a contract for the supply of the physical manifestation of the software, and secondly the grant of a licence to use the software.' The court in Eurodynamics merely stated that the transaction as a whole, is construed as a contract for a transfer of product, though there may be two different elements or aspects in the same contracts, one aspect for the supply of the subject matter, including software as well as hardware, and the other for the grant of licence. )

75. [1996] S.L.T. 604.

76. 6 September 1988 (unreported).

77. 2 March 1994 (unreported). Case number 1992 ORB No. 299.

78. [1995] F.S.R. 686, [1996] 4 All E.R. 481.

79. [1995] F.S.R. 616, 650.

80. [1943] 1 K.B. 527.

81. 2 March 1994 (unreported), Case number 1992 ORB No. 299.

82.G.H. Myers & Co. v. Brent Cross Service Co., [1934] 1K.B. 46.

83.Kearsarge Computer, Inc. v. Acme Staple Co., 116 N.H. 705, 710, 366 A.2d 467, 471 (1976) (concerning a contract for computer data processing services).

84.See HAWKLAND, supra note 39, § 2- 102:04; NIMMER, supra note 39 6.02 at 6-4,5.

85. 42 N.Y.2d 482, 398 N.Y.S.2d 882, 368 N.E.2d 1242 (N.Y. 1977).

86.Id., at 1249-1250. (stating that there is a need to assess all hybrid transactions along the sales-services continuum both legally and pragmatically. 'The fact that in Perlmutter our 'service predominates' analysis led to a conclusion of law which was also supported by policy considerations peculiar to the impure blood cases does not strip its analytic approach of vitality. The court made no attempt to mask the fact that reallocating the risk of loss by imposing warranty liability on no greater proof than the adverse result itself would place untoward economic and health-care burdens on hospitals and patients alike.); see Perlmutter v. Beth David, 486 Hosp., 308 N.Y. 100, 104, 123 N.E.2d 792(N.Y. 1954), (case concerning the supply of impure blood plasma) .

87. NIMMER, supra, note 39 6.02 at 6-5.

88.Worrell v. Barnes, 9 U.C.C. Rep. Serv 76, 87 Nev.204, 484 P.2d 573 (1971). ('The gravamen test of Dean Hawkland suggests the vehicle for satisfying the legislative policy. Accordingly, we hold that where, as part of a commercial transaction, consumer goods are sold which retain their character as consumer goods after completion of the performance promised to the consumer, and where monetary loss or personal injury is claimed to have resulted from a defect in the consumer goods, the provisions of the Maryland U.C.C. dealing with implied warranties apply to the consumer goods, even if the transaction is predominately one for the rendering of consumer services. The facts of the instant case, however, make it unnecessary for us presently to decide whether § 2-316.1 would require that U.C.C. based, implied warranties also extend to consumer goods which are used up in the course of rendering the consumer service to the consumer.')

89.See HAWKLAND, supra note 39 §2-102:04 (1995) (arguing that it might be more sensible and facilitate administration, at least in the area in which contracts involving provisions of both goods and service do not readily fall into one category or the other, to abandon the 'predominant factor' test, and focus instead on whether the gravamen of the action involves goods or services).

90.Myers & Co. v. Brent Cross Service Co., [1934] 1K.B. 46.

91. 524 A.2d 1172 (1987).

92. 524 A.2d 1172, 1174 (1987).

93.Triangle Underwriters, Inc. v. Honeywell, Inc., 457 F.Supp. 765, 767 (E.D.N.Y. 1978), affd. in part, revd. in part, 604 F.2d 737 (2d Cir. 1979).

94.See also, USM Corporation v. Arthur D. Little Systems, Inc., 546 N.E.2d 888 (Mass. App. Ct. 1989) (holding that a contract involving developing, marketing, and installing 'turn-key' computer systems is the contract for the sale of goods. The court found that there was an express promise that the response time, which was defined as 'the amount of time between entry of a command into the system and the appearance on the screen of the requested output' would not be substantially excessive, and such a promise had been breached).

95. 772 F.2d 543 (9th Cir. 1985).

96.Plante v. Jacobs, 10 Wis.2d 567, 570, 103 N.W.2d 296, 298 (1960).

97. 1 U.C.C. Rep. Serv. 2d 29 492 N.E.2d 314 (Ind. Ct. App. 1986).

98.Id. at 318- 319.

99.Id. at 319.

100.See discussion supra [5.4] Physical Medium and Intangibles. It may be noted that almost anything which can be done by software can also be done by hardware.

101. 147 Wis. 2d 500, 434 N.W. 2d 97 (Ct. App. 1988).

102. 1989 U.S. Dist. LEXIS 15239 (N.D. Ill. 1990).

103. See HAWKLAND supra. note 39.

104. 578 A.2d 343 (N.H. 1990).

105. 578 A.2d 343, 345 (N.H. 1990).

106. NIMMER, supra, note 39 at 6-5.

107. 925 F.2d 670 (3d Cir. 1991).

108. 1998 Official Text.

109. 1998 Official Text.

110. John M. Conley, Tort Theories of Recovery Against Vendors of Defective Software, Practising Law Institute, Patents, Copyrights, Trademarks, and Literary Property Course Handbook Series, PLI Order No. G4-3855 (1990); Fickeisen v. Wheeling Elec. Co., 67 W.Va. 335, 336 (1910).

111. 524 A.2d 1172 (1987).

112. 546 N.E.2d 888 (Mass. App. Ct. 1989).

113. 524 A.2d 1172, 1174 (1987).

114. 1990 WESTLAW 18,360 (Del. Super. Ct. 1990), aff'd, 582 A.2d 936 (Del. 1990).

115.Id..

116. 524 A.2d 1172 (1987).

117. 546 N.E.2d 888 (Mass. App. Ct. 1989).

118. 817 F.Supp 235 (D.N.H. 1993).

119.Advent Sys., Ltd. v. Unisys Corp ., 925 F.2d. 670 (3d Cir. 1991); RRX Indus., Inc. v. Lab-Con, Inc., 772 F.2d 543 (9th Cir.1985); Triangle Underwriters, Inc. v. Honeywell, Inc., 604 F.2d. 737 (2d Cir. 1979); Chatlos Sys., Inc. v. National Cash Register Corp., 635 F.2d 1081 (3d Cir. 1980).

120.But see Milau Associates v. North Avenue Development Corp., 42 N.Y.2d 482, 398 N.Y.S.2d 882, 368 N.E.2d 1242 , 1249-1250 (N.Y. 1977).

121. 1 U.C.C. Rep. Serv. 2d 29, 492 N.E.2d 314 (Ind. Ct. App. 1986).

122. 925 F.2d 670 (3d Cir.1991).

123. 826 F.Supp. 855 (D.N.J. 1993).

124. 147 Wis. 2d 500, 434 N.W. 2d 97 (Ct. App. 1988).

125. The Law Commission Report (Law Com. No. 95) at 11 (1979).

126. Id., at 17; see Dodd and Dodd v. Wilson and McWilliam, [1946] 2 All E.R. 691.

127. [1969] 1 A.C. 455 H.L. (E.).

128. (1856) 1 H. & N. 73.

129. [1969] 1A.C. 455, 472-473 H.L. (E.).

130. St. Albans City and District Council v. International Computers Limited, [1995] F.S.R. 686, [1996] 4 All E.R. 481; Saphena Computing limited v. Allied Collection Agencies Limited, [1995] F.S.R. 616.

131. [1995] F.S.R. 686, [1996] 4 All E.R. 481.

132. [1995] F.S.R. 616, 650.

133. NIMMER, supra , note 52 at 6-5.

134. 147 Wis. 2d 500, 434 N.W. 2d 97 (Ct. App. 1988).

135. 1 U.C.C. Rep. Serv. 2d 29 492 N.E.2d 314 (Ind. Ct. App. 1986).

136. [1995] F.S.R. 686, [1996] 4 All E.R. 481.

137. PART 1 CONTEXT: LAW REFORM AND THE U.C.C., U.C.C. 2B (August 1, 1998 proposed draft). ('The distinction that used to be drawn between 'goods' and 'services' is meaningless, because so much of the value provided by the successful enterprise ... entails services [and information]'); U.C.C.§ 2B-103.cmt. (February 1, 1999 proposed draft)('Transactions in computer information differ from sales or leases of goods because the focus of the transaction is on the information, its content or capability, rather than on the tangible items that contain the information is delivered. In a sale of goods, the buyer obtains ownership of the subject matter of the contract (e.g., the specific toaster or television). That ownership creates exclusive rights in the subject matter (e.g., the toaster). In contrast, a person in a transaction whose subject matter involves obtaining the computer information and that acquires a copy of computer information may obtain ownership of the copy but does not, and cannot reasonably expect to, own the information or the rights associated with it. …Transactions in computer information differ from transactions in other information because of the nature of the information involved. Information capable of being processed in a computer is more readily susceptible to modification and to perfect reproduction than information in other form such as printed books or magazines. Indeed, to use computer information, one must copy it into a machine. See Stenograph v. Bossard, 46 U.S.P.Q.2d 1936 (D.C. Cir. 1998); MAI Systems Corp. v. Peak Computer, Inc., 991 F.2d 511 (9th Cir. 1993).

138.See supra note 1.

139. UCITA§ 103(a) (1999 Proposed Official Text).

140. UCITA§ 103 (b) (1) (1999 Proposed Official Text).

141. UCITA§ 103 (b) (2) (1999 Proposed Official Text).

142. UCITA§ 103 (c)(2) (1999 Proposed Official Text).

143. UCITA§102(37) (1999 Proposed Official Text).

144. UCITA§102(11) (1999 Proposed Official Text); see also Copyright Act 17 U.S.C.A §101 'A 'computer program' is a set of statements or instructions to be used directly or indirectly in a computer in order to bring about a certain result.'

145. UCITA§102 (39) (1999 Proposed Official Text).

146. UCITA§102 cmt 35 (October 15, 1999 Proposed Official Draft) 'This is information whose ordinary use involves communication of the information to a human being (individual). This is the information humans read, see, hear and otherwise experience. For example, if an electronic database of images includes the images and a program enabling display or access to the images, the images are informational content while the search program is not.'

147. UCITA§102 (51) (1999 Proposed Official Text).

148. UCITA§102 cmt 47 (15 October 1999 Proposed Official Draft).

149.See supra note 1.

150. UCITA§402 (a) (3) (15 October 1999 Proposed Official Text).

151. UCITA§405 (a) (2) (Proposed Official Text).

152. See [1].[d] Contracts for Information

153. UCITA§405(a)(2) (15 October 1999 Proposed Official Text).