Running Head: COMPARING ARTICLE 2 1

Comparing Article 2 of the UCC to the UCITA

Therese Williams

American Intercontinental University

Running Head: COMPARING ARTICLE 2 2

Abstract

This research paper examines the differences between Article 2 of the UCC and the UCITA. It

explains what the first most significant attempts by the government to uniform commercial law

from state to state. Information in this paper is from a number of references such as: The Oyez

Project, UCITA Online and Clarke, L. This paper also tells you the legal distinction between

selling and licensing a product. Finally, it gives you a reason the “drafters” decided to propose it

as a separate and distinct uniform act.

Running Head: COMPARING ARTICLE 2 3

Comparing Article 2 of the UCC to the UCITA

The “Commerce Clause” was one of the first, most significant attempts by the U.S.

government to promote uniformity in commercial laws from state to state. This law is from the

U.S. Constitution. This clause provided Congress the authority to regulate all “intercourse”

conducted between parties situated in different states. (Gibbons vs. Ogden, 1824).

Congress passed the Interstate Commerce Act in 1887. This act also established an

enforcement board of five members known as the “Interstate Commerce Commission” or ICC

for short. At first the ICC was created for addressing problems with the monopolies, by setting

guidelines for how railroads do their business. (Act of Feb. 4, 1887).

Article 2 of the Uniform Commercial Code is used with transactions involving the sale of

goods; this includes all items that can be both identifiable and movable at the time of sale.

Transactions involving service contracts are not covered by Article 2. The sale of real estate,

insurance, membership to a health club, or a contract between you and a painter to paint your

house would not be covered by Article 2. But the sale of an automobile or a computer would be

covered by Article 2. (“What is Article”, n.d.).

The Uniform Computer Information Transaction Act is a state contract law that is

developed to help regulate transactions in computer information software, like databases, access

contracts or e-books. UCITA have tried to clarify rules regarding fair use, reverse engineering

consumer protection and warranties, shrink-warp licenses, and their duration as well as the

transferability of licenses. (“A Commercial Code”, 2010).

The major differences between Article 2 of the UCC and the UCITA are the UCC deals

with the sales of tangible goods and, the UCITA deals with internet databases and computer
Running Head: COMPARING ARTICLE 2 4

software. Most of what is covered by the UCITA is not tangible goods, therefore cannot be

governed under the second Article of the UCC.

When selling, the seller generally sells all or substantially all of its rights to an assets or

undivided interest therein. The seller may be able to get favorable capital gain rates. (McClellan,

M., July 2009). For example, if you sell someone your patent, then you give up whatever rights

that are stated in your contract.

With a license transaction, the licensor does not part with “substantially all” rights to the

asset. The licensor continues to receive income from the asset in the form of royalties, and the

licensee will generally have a deduction in the amount paid. (McClellan, M., July 2009). For

example, if you lease your home. You still own it, but someone else occupies the dwellings.

To put it simpler, a sale is a complete and final transfer from seller to a buyer, of all

rights, title and interest in and to the property identified in the contract. A license is a right to use

the property of another under certain agreed-upon terms and conditions. Generally software

products are licensed.

Article 2’s drafters’ task was to achieve uniformity through codification, selecting the

rules from precedents more consistent with the current commercial practices, to create a law that

would become uniform. Drafters became too conservative in replicating Article 2. (Clarke, L.,

Feb. 20, 2001). So they created the UCITA.

Once the UCITA became established it was very controversial. Many years of contract

law were thrown “out of whack”. Interferences with the U.S. Copyright Act by the UCITA

effectively limit what is known as the “First Sale Doctrine”. The UCITA may be
Running Head: COMPARING ARTICLE 2 5

unconstitutional and has only been passed in two states- Virginia and Maryland. Efforts have

failed to pass the law in other states. (UCITA, n.d.).

Running Head: COMPARING ARTICLE 2 6

References

The Oyez Project. Gibbons vs. Ogden, 22 U.S. 1 (1824). Retrieved August 4, 2010 from

http://oyez.org/cases/1792-1850/1824_0

Pearson Education. Gibbons vs. Ogden (1824). Retrieved August 4, 2010 from

http://infoplease.com/us/supreme-court/cases/ar12.html

Act of Feb. 4, 1887 (Interstate Commerce Act). Public Law 49-41, Feb. 4, 1887: Enrolled acts

and resolutions of Congress, 1789; General Records of the United States Government, 1778-

1992; Record Group 11; National Archives

UCITA Online. A commercial code for the information age? (Aug. 6, 2010). Retrieved from

http://www.ucitaonline.com/

What is Article 2 of the U.C.C.? (n.d.). Retrieved from http://resources.lawinfo.com/en/Legal-

FAQs/UCC-and-Warranties/Federal/what-is-article-2-of-the-ucc.html

McClellan, M. (July 2009). Legal affairs: Buying, selling, and licensing IP. Retrieved from

http://www.sbnonline.com/Local/Article/17564/68/121/Buying_selling_and_licensing_IP.aspx

Clarke, L. (Feb. 20, 2001). Performance risk, form contracts and UCITA, 7 Mich. Telecomm.

Tech. L. Rev. 1. Retrieved from http://www.mttlr.org/volseven/clarke_art.html

UCITA. (n.d.). Retrieved from http://knowledgerush.com/kr/encyclopedia/UCITA/