Is Software a Good or a Service?

Welcome back.  I hope everyone had a good a great holiday season.  I certainly enjoyed my vacation, but now it’s time to return to writing.

How the legal system should regard software is something of a conundrum.  On its face, this appears to be a simple matter to determine.  Software often greatly resembles a good, which the Uniform Commercial Code (UCC) defines as “all things . . . which are movable at the time of identification to the contract for sale . . . .” UCC § 2-105.  A service is usually work paid for by another person, though it includes anything that is not a good.  Software seems to meet this minimum requirement for most people (particularly if it’s stored on physical media like a DVD), though that potentially gets more complicated when one includes digitally distributed software.  Still, one could argue that a game bought off Steam counts as an item that was movable at time of identification, even if “movable” refers to transmission over the internet.  Many commercial software vendors argue that their software is a service, and utilize licensing schemes to maintain control over their product.  Goods and services get treated differently by the legal system, and receive different protections.  This post won’t go into the intricacies of the UCC, or how to treat service contracts.  Instead, let’s focus on how trademark law deals with the need to determine whether software represents a good or a service.

As Eric Goldman points out (http://blog.ericgoldman.org/archives/2014/01/is-it-software-is-it-a-service-it-matters-for-trademark-registration-purposes.htm), trademark law requires a “use in commerce” for someone to register their trademark.  Goldman uses a case between NetJets, Inc. and Intellijet (located here: http://digitalcommons.law.scu.edu/cgi/viewcontent.cgi?article=1617&context=historical), where NetJets used Intellijet’s name for software NetJets sold (though they capitalized every letter in INTELLIJET).  Intellijet argued that NetJets did not have an enforceable right in the name because NetJets did not use the name in commerce as required by the Lantham Act.  The court ruled for Intellijet, finding that NetJets did not market their software as a separate product.  INTELLIJET mostly functioned as internal software, though customers could see the name when they accessed a NetJets portal to purchase other software.  Basically, they tried to include a service under a mark for a good and got called out on it.

The major lesson of this case is that the applicant should be more careful in how they file for trademark protection if they wish to register corporate software for trademark protection.  However, this ruling means that trademark law does not provide a definitive answer to the question.  The court seems to consider the software at trial to represent a service, but the software is inherently service oriented.  NetJets’ web portal is primarily designed to help customers access portions of the website.  The case doesn’t deal with consumer software, only software that is ancillary to whatever offering the company makes.  That remains an open question.  Given the prominence (and potential restrictions) of End User Licensing Agreements (EULA), that question remains important to answer.  The National Conference of Commissioners on Uniform State Laws attempted to clarify the issue with the Uniform Computer Information Transactions Act (UCITA).  UCITA attempted to clarify software’s ambiguity in the law’s good/service dichotomy by modifying the UCC Article 2 (which deals with contract formation, among other contracting issues).  UCITA specifically stated that publishers had to include an EULA if they wanted customers to treat their software as a service (making the license valid).  If there was no EULA, courts would consider the software to be a good.  Not surprisingly, UCITA encountered a lot of opposition (not without reason, as explained here: http://www.jamesshuggins.com/h/tek1/ucita.htm) and only got passed in two states (Virginia and Maryland, as seen here: http://www.computerworld.com/s/article/83870/Sponsor_s_surrender_won_t_end_UCITA_battle?taxonomyId=070).  As a result, whether software is a good or a service depends largely on the jurisdiction.

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