Substantial changes have been made in this Draft based on discussions at the Drafting Committee meeting in January, 1996 and input from software end user groups, representatives of the publishing industry, members of the New York City Bar Association, members of the California Bar Association commercial law committee, and the Software subcommittee of the American Bar Association.

    While substantially improved, this remains a draft "in process," and no final decisions on any provisions have been taken by this Drafting Committee or the sponsoring organizations.

    The reader is referred to the Preface contained in the December, 1995 draft for an overview of the structure and drafting approach of this draft. That discussion is not repeated here. The purpose of this note is to provide guidance to the major changes made in the Draft

     Scope    

    The December Draft focused on transactions in digital information. That term was used to attempt to capture the convergence that is occurring in the electronic information industries. Virtually unanimous commentary, however, suggested that a concentration on a single, current technology was not appropriate. The likelihood is that new technologies for processing information will continue to evolve and to do so rapidly. Because of this, this Draft abandons the digital limitation.

    This step leaves open a difficult question of defining scope. Both during the Drafting Committee meeting and at later sessions with some of the groups noted above, there was relatively strong support for a scope definition covering all transactions in information (regardless of technology), with an approach of carving out transactional contexts that, as the substantive terms of the Article evolve, appear to be inappropriate. Much more limited support existed for seeking a new, technology based qualifier for the scope definition.

    This Draft applies to all transactions in information subject to exclusions outlined in Section 2B-103. That choice was made for drafting purposes because it allows the Drafting Committee to consider the broadest range of input available and to ask questions about appropriate substantive default rules looking at an entire range of transactions that have strong similarities. For example, in considering the appropriate default rule for factual or other content errors in the case of on-line databases, the Committee can squarely consider why (if at all) that default rule should be different from that used with reference to ordinary newspapers and magazines (increasingly being distributed in both paper and digital form). The Draft presumes that the rule should not be different and that the time-tested rules applicable to generally distributed new and entertainment products as to their content should carry over to the on-line context.

    The Draft continues to use a licensing paradigm for many of its provisions, but also includes transactions in which copies of information products are sold, in the same manner that original Article 2 covered transactions in goods viewing them primarily from a perspective based on sales. To ensure that the distinctions are observed when appropriate, the definition of a " license" has been narrowed to cases where an express contractual limitation on use, copying, or the like exists.

     Electronic Contracting

    There was extensive discussion of electronic contracting issues at the Drafting Committee January meeting. The thrust of the discussions generally supported the approach taken in the prior Draft and that approach remains largely unchanged. There are several important modifications, however, that are critical to understanding this Draft.

    The first is that it has been made clear that, in order to be bound by actions of one' s computer in

arranging or performing a contract, the party must have programmed or had programmed for it a system that is capable of and intended to achieve those results. The key step in clarifying this comes in the definition of

" electronic agent" which has been extracted from prior definitions in the December 1995 Draft and delineates a computer program designed, selected, or programmed to be able to act independent of immediate personal review by the party. The actions of such an " agent" are those that may bind the party.

    The second change is to highlight the question of " attribution." In the electronic venues in which the Article will have its greatest effect, attribution questions are key. As drafted here, all of the questions of assent, electronic performance, offer and the like hinge on being electronic actions that can be attributed to the particular party. Hence, the definition of attribution is a critical risk allocation step. As in other parts of the article, actual agreements control. Absent that, Section 2B-113 plays a critical role. That section was modified to clarify language in the prior draft. It now sets out two clear rules (actual agency, presumed agency because of compliance with an agreed procedure) and list three options for a third rule that would allocate loss when a third party intervenes and causes the message to be sent. All of the options assume that a pure hacker cannot bind anyone and that the loss will lie with the one defrauded by the hacker. Beyond that, however, it suggests some situations in which a different result may be appropriate in the interests of enhancing the reliability of the internet and similar contracting systems. One should also review the definition of " attribution procedure" new to this Draft, and adapted from Article 4A.

     Remedies

    Two major changes have been made in the remedies provisions.

    The first was a substantial reorganization and clarification of general remedies (damages) rules based on a review of the sections in light of the scope of the article. The damages rules have been reduced in number and clarified. They will be discussed at the March meeting of the Drafting Committee.

    This Draft raises, but does not adopt the position strongly argued by various sources that the default rule in reference to damages should exclude consequential damages unless agreed to be the parties. Arguably, this would be correspond to modern commercial practice where consequential damages are often disclaimed in negotiated deals. As indicated in the Preface to prior drafts of this article, a goal of drafting must be to reflect, rather than regulate commercial practice. Additionally, a perhaps less globally, an exclusion of consequential damages for publicly distributed electronic or other information would seem to be highly appropriate given the low cost, potentially high risk, nature of the commodity being dealt with. By analogy to other recently adopted UCC articles, a default rule that requires affirmative agreement to create liability for consequential loss would be appropriate for on-line systems and similar nonelectronic general information products. A limited step in that direction is in the section on terms of electronic transactions.

    The second major change involves an effort to clarify the balance sought with reference to a licensor' s right to prevent continued use of its product after a material breach. The goal is to more closely condition the right on there being a proportionate right or loss. That is, to ensure that no significant rights are entailed of damage to person or property and that the remedy exists only in the event of a true material breach.