Technology Contracting for Transit Projects (2017)

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10 supplies, the estimated cost of which exceeds the sum of ten thousand dollars, shall be made by the authority only upon public letting founded on sealed bids….89 Another New York statute provides that, except as otherwise stated, all purchase contracts for supplies, materials or equipment involving an estimated expenditure in excess of one hundred thousand dollars and all contracts for public work involving an estimated expenditure in excess of one hundred thousand dollars shall be awarded by the author- ity to the lowest responsible bidder….90 However, there are several instances in New York when a transit authority may declare that competi- tive bidding is inappropriate, including when “the authority wishes to experiment with or test a new product or technology or evaluate the service or reli- ability of a new source for a particular product or component….”91 In Virginia, the Virginia Information Technolo- gies Agency (VITA) is responsible for procuring IT and telecommunications goods and services of every description for VITA’s benefit or on behalf of other state agencies and institutions, as well as other agencies or institutions to the extent authorized by VITA.92 Virginia’s statute requires that all statewide contracts and agreements made by VITA for the purchase of communications services, telecommuni- cations facilities, and IT goods and services must “provide for the inclusion of counties, cities, and towns….”93 Localities, unless otherwise prohibited, “are authorized to purchase information technology goods and services of every description from VITA and its vendors….”94 IV. APPLICABILITY OF STATE CONTRACT AND TORT LAW AND ARTICLE 2, UNIFORM COMMERCIAL CODE, TO TECHNOLOGY AGREEMENTS A. Applicability of State Law on Contracts and Torts State or local procurement laws, regulations, and policies should be consulted for their applicability to technology contracts, including their solicitation and award. However, to the extent not addressed in the procurement laws or a transit agency’s technology agreement, disputes between a transit agency and a contractor, designer, developer, licen- sor, or vendor are likely to be decided based on state law on contracts and torts and Article 2 of its UCC.95 The parties’ contract should state which jurisdic- tion’s law and the body of law (e.g., common law of contracts, the UCC, and/or other statutory law) that apply to the contracting process and to the contract, rather than leave the issues to a court’s later deter- mination. In general, if a contract involves both goods and services, but predominately involves a sale of goods, the parties may stipulate that the UCC applies to their contract; however, if a contract is one only for services, then the UCC does not apply. More- over, when an agreement is predominately or only for the supply of technology services, it is not clear that the parties to a technology contract in every state could designate Article 2 of the UCC as the agreement’s governing law. For example, although the case did not involve Article 2 of the UCC, the Maryland Court of Appeals has stated that “[t]he power to alter the effect of UCC provisions…is not unlimited.…[A]lthough ‘an agreement can change the legal consequences which would otherwise flow from the provisions of the Act,’ an agreement cannot alter ‘the meaning of the statute itself.’”96 In the cases discussed in part A below, state law on contracts and torts governed the parties’ claims and counterclaims. Part B discusses how the courts have applied Article 2 of the UCC to certain kinds of technology agreements. At issue in Superior Edge, Inc. v. Monsanto Company97 was a software development and license agreement between Superior Edge, Inc. (SEI) and Monsanto Company (Monsanto). After Monsanto became concerned that SEI would be unable to 89 N.Y. CLS Pub. A § 1209(2) (2016) (e.g., the existence of an emergency or the existence of other circumstances mak- ing competitive bidding impracticable or inappropriate). 90 N.Y. CLS Pub. A § 1209(7)(a) (2016). The section does not apply to contracts for architectural, engineering, or other professional services. 91 N.Y. CLS Pub. A § 1209(2)(f) (2016). 92 VA. code ann. § 2.2-2012(A) (2016). 93 VA. code ann. § 2.2-2012(B) (2016). 94 VA. code ann. § 2.2-2012(C) (2016). 95 Lee B. Burgunder, Legal Aspects of Managing Technol- ogy 493 (2011), hereinafter referred to as “Burgunder.” See also, Wall Data v. Los Angeles County Sheriff’s Dept., 447 F.3d 769 (9th Cir. 2006) (holding that the Sheriff’s Depart- ment committed copyright infringement when it installed computer software on more computers in excess of the number of licenses it had acquired from a software devel- oper) and United States v. Oracle Corp., 751 F. Supp. 2d 842 (E. D. Va. 2010) (involving a case brought by the General Services Administration (GSA) under the False Claims Act against Oracle Corporation for overcharges for software that Oracle provided to the GSA). 96 Lema v. Bank of America, N.A., 375 Md. 625, 642, 826 A.2d 504, 514 (Md. Ct. App. 2003) (stating also that the meaning of the UCC must be found in the UCC’s text, including its definitions, and in appropriate extrinsic aid; that agreements may not make an instrument negotia- ble within the meaning of Title 3 except as provided in § 3-401; and that agreements also may not change the meaning of various U.C.C. terms, such as bona fide pur- chaser, holder in due course, or due negotiation) (cita- tions omitted) (internal quotation marks omitted). 97 44 F. Supp. 3d 890 (D. Minn. 2014).

11 deliver timely the promised software developments, and because SEI would not allow Monsanto to review its source code, Monsanto terminated SEI’s services.98 A federal district court in Minnesota, applying Missouri law,99 ruled first that Monsanto’s counterclaims stated plausible claims for breach of contract, money had and received, and fraudulent and negligent inducement.100 The court agreed also that Monsanto’s counterclaim was sufficient to state a claim for conversion of Monsanto’s IP.101 In System Automation Corp. v. Ohio Department of Administrative Services,102 an Ohio appellate court applied Ohio law to the question of whether the Ohio Department of Administrative Services (DAS) had renewed or extended a contract with System Auto- mation Corp. (SAC) for a computer database system to process and track licenses issued by all state professional boards in Ohio.103 Under Ohio law, the director of DAS had discretion to delegate his powers.104 Although DAS argued that the director had not renewed the contract, the court held that other DAS management personnel had renewed it.105 The appellate court affirmed a judgment of the Ohio Court of Claims that DAS had to compensate SAC for all deliverables that DAS accepted, plus retainage.106 In Hancock Electronic Corp. v. WMATA,107 Hancock Electronic Corp. (Hancock) and the Wash- ington Metropolitan Area Transit Authority (WMATA) had a contract whereby Hancock would replace the braking systems on approximately 300 railcars. The contract required Hancock “to provide WMATA with certain technical data about the systems” and to prove through testing that it had performed the contract.108 When WMATA requested Hancock’s technical data and software so that a third party could conduct performance testing, Hancock refused. Hancock argued that “its technical data and software are proprietary and [that] its contract with WMATA does not provide for their disclosure either to WMATA or to a third party.”109 Thereafter, WMATA terminated the parties’ contract and invoked the contract’s default clause.110 Because Hancock had not availed itself of the administrative procedures specified in the contract, a federal district court in Virginia dismissed Hancock’s claim. In upholding the ruling, the Fourth Circuit also addressed Hancock’s argument that WMATA’s demand for the technical data and soft- ware was a “cardinal change” to the contract that obviated any requirement of Hancock to resort first to the contract’s administrative procedures. The Fourth Circuit held: WMATA’s demands, even if not covered by the contract, did not effect a cardinal change to the contract so as to nullify the contract’s dispute resolution mechanisms. The elec- tronic aspects of Hancock’s replacement brakes had to be tested, and WMATA was entitled under the contract to determine whether they qualified.111 The court held that the dispute was one that the contract required to be resolved through the admin- istrative procedures specified in the contract.112 In Bowne Management Systems, Inc. v. City of New York,113 the New York City Department of Transportation (DOT) had a contract with Bowne Management Systems, Inc. (Bowne) for the creation and implementation of a Sign Information Manage- ment System (SIMS) to allow the DOT to inventory, identify, and manage approximately 1.3 million traf- fic control devices in the five boroughs of New York City.114 After the DOT terminated the contract for cause and the Supreme Court, Nassau County, dismissed Bowne’s Article 78 proceeding, Bowne commenced a plenary action alleging breach of contract by the city and the DOT.115 A New York court, applying New York law, denied the defen- dants’ motion that Bowne’s claims were barred by collateral estoppel and that Bowne failed to file a proper notice of claim under the affected statute. Because Bowne did not have “a full and fair opportu- nity to litigate its contract claims in the Article 78 proceeding,” the court held that the doctrine of collateral estoppel did not apply.116 Thus, a variety of state contract and tort claims, as well as other claims and defenses under state law, may arise under a transit agency’s technology agree- ment, including claims for breach of contract, money had and received, fraudulent or negligent induce- ment, conversion, negligence, bad faith termination, 111 Id. at 454. 112 Id. at 455. 113 32 Misc. 3d 1215(A), 934 N.Y.S. 2d 32, 2011 N.Y. Misc. LEXIS 3431, at *1 (N.Y. Sup. Ct. 2011). 114 Id. 115 Id. at *6. 116 Id. at *13. The court also held that because defen- dants “were put on sufficient notice” there was compliance with the New York statute. 98 Id. at 896. 99 Id. at 899 N 5. 100 Id. at 896. 101 Id. at 909–10. 102 2004 Ohio 5544, 2004 Ohio App. LEXIS 4964, at *1 (Ohio App. 2004). 103 Id. at P2. 104 Id. 105 Id. at P25. 106 Id. at P28. 107 81 F.3d 451 (4th Cir. 1996). 108 Id. at 453. 109 Id. 110 Id.

12 implied renewal of a contract, excused performance, and failure to pursue required administrative reme- dies. As discussed in part B.5 in the next section, when parties have disputes arising under a technol- ogy contract, the economic loss doctrine in some cases may preclude the joinder of tort claims with contract claims. B. Article 2, Uniform Commercial Code 1. Application of Article 2 to Digital Products State law primarily governs the contractual rela- tionships at issue in technology contracts. Claims arising out of a licensing agreement likely would be governed by a state’s law of contracts, Article 2 of the UCC, and/or any applicable state licensing or other statutory law.117 With some exceptions, all states and the District of Columbia have adopted the UCC or some articles of the UCC.118 In this part, the report will cite primarily to the New York UCC. Even though the use of software was not foreseen at the time of the states’ adoption of the UCC, the UCC may apply to disputes involving a technology agreement. Although there is “‘more than a little uncertainty…where computer software transactions fit within the body of commercial law,’”119 the courts often apply Article 2 of the UCC by analogy in disputes over the sale or licensing of software.120 Although the UCC “predates the digital world,” scholars agree that the courts have applied the UCC to “digital prod- ucts.”121 With the exception of custom-programmed software, Article 2 has been applied to “software licensing…including contract formation, interpreta- tion, performance, warranties, and remedies.”122 In Surplus.com, Inc. v. Oracle Corp.,123 even though the software in dispute was not fully opera- tional until a separate company developed and implemented the software, the issue was whether the software program that the plaintiff purchased was a “good” that is subject to the UCC.124 In oppos- ing a motion to dismiss by Oracle Corp. (Oracle) regarding the applicability of a statute of limita- tions, the plaintiff argued that “a transaction predominately involving the intellectual property rights to software is outside the scope of the UCC.”125 A federal district court in Illinois, applying Illinois law, held that the court must apply a “predominant purpose test” when a sale of goods also includes a sale of services to determine whether the transac- tion is a sale of a good that is subject to the UCC. The court granted Oracle’s motion to dismiss because “the various services envisioned by those agreements were incidental in nature and certainly ancillary to the software itself.”126 Furthermore, the pertinent agreements’ “provision for maintenance and technical support do not render the software a ‘service’ rather than a ‘good.’”127 Thus, the UCC’s four-year statute of limitations barred the plaintiff ’s claim for breach of contract. In Rottner v. AVG Technologies USA, Inc.,128 a federal district court in Massachusetts, applying Delaware law, stated that “[a]lthough the Delaware courts have not directly addressed this distinction, courts nationally have consistently classified the sale of a software package as the sale of a good for UCC purposes.”129 The court distinguished a Dela- ware case, Wharton Management Group v. Sigma Consultants,130 involving custom designed software, because in Wharton a programmer had to prepare a study of the customer’s existing operations before designing, developing, and installing computer soft- ware to meet the customer’s needs and objectives. In Wharton, “[i]n essence, ‘it was [the programmer’s] knowledge, skill and ability for which Wharton bargained…[and] purchased in the main….’”131 117 See Matthew J. Smith, An Overview of the Uniform Computer Information Transactions Act: Warranties, Self- Help, and Contract Formation[:] Why UCITA Should be Renamed ‘The Licensors’ Protection Act, 25 S. iLL U. L. J. 389 (2001), hereinafter cited as “Matthew Smith.” 118 USLegal.com, States Adopting the UCC, https:// uniformcommercialcode.uslegal.com/states-adopting- the-ucc/ (last accessed Feb. 24, 2017). See also, Landy & Mastrobattista, supra note 16, at 194. 119 Matthew Smith, supra note 117, at 389 (citation omitted). 120 See Bonna Lynn Horovitz, Computer Software as a Good under the Uniform Commercial Code: Taking a Byte out of the Intangibility Myth, 65 B.U.L. REV. 129, 145–46 (1985). 121 Landy & Mastrobattista, supra note 16, at 194. 122 Id. 123 No. 10 CV 03510, 2010 U.S. Dist. Lexis 136254, at *1 (N.D. Ill. Dec. 23, 2010). 124 Id. at *3. 125 Id. at *8 (internal quotation marks omitted). 126 Id. at *12 (citation omitted). 127 Id. at *15 (citation omitted). 128 943 F. Supp. 2d 222 (D. Mass. 2013). 129 Id. at 230 (citing ePresence, Inc. v. Evolve Software, Inc., 190 F. Supp. 2d 159, 163 (D. Mass. 2002) (applying California law); Micro Data Base Sys. Inc. v. Dharma Sys., Inc., 148 F.3d 649, 654 (7th Cir. 1998) (applying New Hampshire law); Advent Sys. Ltd. v. Unisys Corp., 925 F.2d 670, 675–76 (3d Cir. 1991) (applying Pennsylvania law and noting that a majority of academic commentaries support the view that software fits within the definition of a good under the UCC); Newcourt Fin. USA, Inc. v. FT Mortg. Cos., 161 F. Supp. 2d 894, 897–98 (N.D. Ill. 2001) (applying Illinois law); Architectronics, Inc. v. Control Sys., Inc., 935 F. Supp. 425, 432 (S.D.N.Y. 1996) (applying New York law); and Olcott Int’l & Co. Inc. v. Micro Data Base Sys., Inc., 793 N.E.2d 1063, 1071 (Ind. App. 2003)). 130 No. C.A. 89-C-JA-165, 1990 Del. Super. LEXIS 54, at *1 (Del. Super. Ct. Jan. 29, 1989). 131 Rottner, 943 F. Supp. 2d at 230 (citations omitted).

13 Likewise, in Simulados Software, LTD v. Photon Infotech Private, LTD,132 Simulados Software, LTD (Simulados), a Texas software development company, developed a program for which it entered into a contract with Photon Infotech Private, LTD (Photon), a New Jersey corporation with a virtual office in San Jose, California, to produce a version that was compatible with Apple Macintosh computers, as well as an Internet web application.133 Simulados, alleging that Photon never fulfilled its contractual obligations, sued, inter alia, for breach of contract, fraud, and fraudulent inducement.134 A federal district court in California agreed that “[a]pplying the UCC to software poses a complex issue because transactions for software often combine elements of both goods and services. As such, courts have arrived at different decisions concerning whether software transactions are covered by the UCC.”135 Nevertheless, the court dismissed Simula- dos’ claim that under the UCC it was “entitled to remedies outside the contract” because the parties’ contract was for the sale of software.136 The court held that “[t]he primary test used by courts to deter- mine whether software is a good under the UCC is the predominant factor test, where courts look to the ‘essence of the agreement’ on a case-by-case basis to decide how to characterize the transaction.”137 The court stated that “mass-produced, standardized, or generally available software, even with modifica- tions and ancillary services included in the agree- ment, is a good that is covered by the UCC.”138 Thus, there are instances when software may be consid- ered to be a good under the UCC even though ancil- lary services are involved. However, when “software is designed from scratch, or the transaction is mainly for one party’s knowledge and skills in creating soft- ware, the software is often found to be a service rather than a good.”139 The court held that the contract with Photon to produce a Mac-compliant version of Simulados’ existing software was for a service to which the UCC did not apply.140 2. Warranties Created by Oral or Written Communications Because warranties that may arise under a state’s UCC are particularly important, vendors and licen- sors of technology may seek to disclaim them in their agreements. Under the UCC, a formal declara- tion or promise may result in the creation of a warranty,141 but an oral or written communication also may give rise to the existence of a warranty.142 Under New York UCC section 2-313(1), (a) Any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise. (b) Any description of the goods which is made part of the basis of the bargain creates an express warranty that the goods shall conform to the description. (c) Any sample or model which is made part of the basis of the bargain creates an express warranty that the whole of the goods shall conform to the sample or model. Section 2-313(2) states that to create an express warranty, a seller need not “use formal words such as ‘warrant’ or ‘guarantee’ or…have a specific inten- tion to make a warranty, but an affirmation merely of the value of the goods or a statement purporting to be merely the seller’s opinion or commendation of the goods does not create a warranty.” Because of the informal manner in which warran- ties may arise, a technology agreement is likely to include an “integration” or “entire agreement” clause that excludes any oral or written agreements that preceded the parties’ final, written agreement.143 Because such a clause is used to control a company’s warranty or other obligations,144 a transit agency should make certain that its contract includes anything that a contractor, designer, developer, licensor, or vendor promised or represented during pre-contract proposals and/or negotiations.145 3. Implied Warranties Under the UCC Importantly, implied warranties under the UCC may arise “simply because the transaction occurred.”146 Under the UCC, merchants imply in their contracts that their goods will be merchantable.147 Section 2-314(1) provides that, unless excluded or modified, “a warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind.”148 Section 2-314(2)(c) states that for goods to be merchantable, the goods at a minimum must be “fit for the ordinary purposes for which such goods are used….” Under UCC section 2-315, when a 132 40 F. Supp. 3d 1191 (N.D. Cal. 2014). 133 Id. at 1194. 134 Id. at 1196. 135 Id. at 1199. 136 Id. 137 Id. (citations omitted) (emphasis supplied). 138 Id. 139 Id. at 1201. 140 Id. at 1202. 141 Burgunder, supra note 95, at 495. 142 Id. 143 See Landy & Mastrobattista, supra note 16, at 206. 144 Burgunder, supra note 95, at 496 145 Id. 146 Burgunder, supra note 95, at 497. 147 Id. 148 See N.Y. U.C.C. § 2-316 (2016).

14 seller at the time of contracting has reason to know any particular purpose for which the goods are required and that the buyer is relying on the seller’s skill or judgment to select or furnish suitable goods, there is unless excluded or modified under the next section an implied warranty that the goods shall be fit for such purpose.149 Moreover, the UCC provides that, unless excluded or modified by section 2-316, “other implied warranties may arise from course of dealing or usage of trade.”150 Two important implied warranties are the UCC’s warranty of title and warranty against infringement. Under UCC section 2-312, a seller warrants in a sales contract that “the title conveyed shall be good, and its transfer rightful” and that “the goods shall be delivered free from any security interest or other lien or encumbrance of which the buyer at the time of contracting has no knowledge.”151 The warranty may be “excluded or modified only by specific language or by circumstances which give the buyer reason to know that the person selling does not claim title in himself or that he is purporting to sell only such right or title as he or a third person may have.”152 Furthermore, unless the parties have agreed to the contrary, “a seller who is a merchant regularly dealing in goods of the kind warrants that the goods shall be delivered free of the rightful claim of any third person by way of infringement or the like but a buyer who furnishes specifications to the seller must hold the seller harmless against any such claim which arises out of compliance with the specifica- tions.”153 As one commentator explains, “[i]f a company sells products, then, by implication, it promises that the product does not infringe the intellectual property rights of another.”154 As noted, the parties’ technology agreements may exclude implied warranties.155 Exclusions of warran- ties should be set forth in conspicuous language.156 The disclaimer of an implied warranty must mention the word merchantability.157 A disclaimer of warranties may state, for example, that the seller “disclaims all implied warranties, including but not limited to, the implied warranties of merchantabil- ity and fitness for a particular purpose.”158 4. Damages Under the UCC As for damages for a breach of an agreement that comes within the meaning of the UCC, the most important remedies are for compensatory and conse- quential damages.159 For instance, the New York UCC section 2-714(2) states: The measure of damages for breach of warranty is the difference at the time and place of acceptance between the value of the goods accepted and the value they would have had if they had been as warranted, unless special circum- stances show proximate damages of a different amount. Under UCC section 2-714, “a buyer not only is entitled to compensation for loss of the benefit of the bargain but also may receive incidental and consequential damages.”160 The term consequential damages refers to the “additional costs and expenses…that the non-breaching party foreseeably incurs because of the breach,” such as lost profits.161 Consequential damages are: (a) any loss resulting from general or particular require- ments and needs of which the seller at the time of contract- ing had reason to know and which could not reasonably be prevented by cover or otherwise; and (b) injury to person or property proximately resulting from any breach of warranty.162 On the other hand, the cost of storage incurred because of a breach is an incidental cost.163 Developers and vendors are likely to try to exclude their liability for consequential damages, as well as limit or exclude their other potential liabilities. Some transit agencies may have sufficient leverage or bargaining power to negotiate better terms. If an agency is unable to reach an agreement that allows the agency to claim consequential damages for a developer’s or vendor’s breach of an agreement, the agency still may attempt to negotiate better terms. First, for example, the parties may be able to agree to a cap on recoverable damages that are determined by a formula or to include a liquidated damages clause that applies to a developer’s or vendor’s fail- ure to perform as described in the contract.164 149 N.Y. U.C.C. § 2-315 (2016). 150 N.Y. U.C.C. § 2-314(3) (2016). 151 N.Y. U.C.C. §§ 2-312(1)(a)–(b) (2016). 152 N.Y. U.C.C. § 2-312(2) (2016). 153 N.Y. U.C.C. § 2-312(3) (2016). 154 Burgunder, supra note 95, at 497. Federal and state consumer warranty laws may prevent or limit the exclu- sion of implied warranties vis-à-vis consumers. Id. at 498. 155 Id. at 498. 156 N.Y. U.C.C. § 2-316(2) (2016) (“Subject to subsection (3), to exclude or modify the implied warranty of merchant- ability or any part of it the language must mention mer- chantability and in case of a writing must be conspicuous, and to exclude or modify any implied warranty of fitness the exclusion must be by a writing and conspicuous. Language to exclude all implied warranties of fitness is sufficient if it states, for example, that “There are no warranties which extend beyond the description on the face hereof.”). 157 Burgunder, supra note 95, at 498. 158 Id. 159 Id. at 500. 160 Id. at 501. 161 See Landy & Mastrobattista, supra note 16, at 213. 162 N.Y. U.C.C. §§ 2-715(2)(a) and (b) (2016). 163 See Landy & Mastrobattista, supra note 16, at 214. 164 Mistry Prabhudas Manji Eng. Pvt. Ltd. v. Raytheon Eng’rs & Constructors, Inc., 213 F. Supp. 2d 20, 24 (D. Mass. 2002).

15 Second, a transit agency may negotiate for the recovery of foreseeable damages that are within the contemplation of the parties at the time of contract- ing (e.g., a special hazard) that are not limited to or excluded by the contract.165 Third, the parties may agree that “substitution costs,” similar to the UCC’s concept of cover, are recov- erable.166 UCC section 2-712(1), which applies to “cover” or a buyer’s procurement of substitute goods, states in part that “[a]fter a breach…the buyer may ‘cover’ by making in good faith and without unreason- able delay any reasonable purchase of or contract to purchase goods in substitution for those due from the seller.” The UCC allows a buyer to “recover from the seller as damages the difference between the cost of cover and the contract price together with any inciden- tal or consequential damages…less expenses saved in consequence of the seller’s breach.”167 Even if conse- quential damages are excluded, the parties may be able to agree that incidental damages are allowable. Fourth, a transit agency may be able to obtain other concessions, such as a longer warranty.168 Fifth, the parties’ agreement could provide that any limitation on or exclusion of damages does not apply to claims for delay damages. Finally, UCC section 2-719(1)(a) allows the parties to provide in their agreement for other remedies, such as “return of the goods and repayment of the price [or] repair and replacement of non-conforming goods or parts.”169 However, when a limited remedy under UCC section 2-719(1) fails in its essential purpose, the question arises as to whether an injured party may claim consequential damages even if the agreement excludes consequential damages. According to one court, “courts across the country are split on the ques- tion.”170 Rather than leave the issue unresolved, a technology agreement could provide, assuming it excludes consequential damages, that consequential damages are not excluded when “circumstances” cause a transit agency’s limited remedy under section 2-719(1)(a) to fail of its essential purpose.171 5. Economic Loss Doctrine The “existence of the U.C.C.…serves as one of the founding principles for the creation of the economic loss doctrine.”172 The doctrine or rule is a “judicial construct” that attempts to impose a “boundary line” on when a party to a contract may bring or join a tort claim, such as for negligence or for strict liability.173 The economic loss doctrine seeks “‘to preserve the distinction between contract and tort theories in circumstances where both theories could apply.’”174 Under the rule, only damages that represent a party’s economic losses are recoverable under contract law or the UCC.175 Economic losses “include lost profits, repair or replacement, downtime, overtime, and other incidental and consequential damages.”176 There are cases holding that the economic loss doctrine bars tort claims when “losses relate to the subject matter of the contract,”177 when a “tort claim arises out of the same set of facts as a breach of contract claim,”178 and/or when “a plaintiff ’s claim involves merely disappointed expectations arising from the plaintiff ’s bargain with the defen- dant.”179 The term disappointed expectations refers to a claim for damages that was within the parties’ contemplation at the time of contracting, and there- fore, is not allowable.180 There are exceptions to the economic loss rule.181 First, there is precedent holding that the doctrine only applies in cases involving contracts for the sale of goods, and thus, does not apply to claims “for the negligent supply of services.”182 Second, although “claims for fraud in the perfor- mance of a contract are sometimes barred,183 the doctrine does not necessarily bar tort claims for negligent misrepresentation,184 fraudulent represen- tation,185 or fraud in the inducement of a contract.186 Third, even when the subject matter of an action relates to a contract between the parties or when a tort claim is “based on the same facts as a breach of 165 Anchor Sav. Bank, FSB v. United States, 81 Fed. Cl. 1, 75 (Ct. Cl. 2008). 166 See id. at 125. 167 N.Y. U.C.C. § 2-712(2) (2016). 168 See Ebasco Services, Inc. v. Pennsylvania Power & Light Co., 460 F. Supp. 163, 180 (E.D. Pa. 1978). 169 Burgunder, supra note 95, at 501. 170 Schurtz v. BMW of North America, 814 P.2d 1108, 1113 (Utah 1991) (citations omitted). 171 N.Y. U.C.C. § 2-719(2) (2016). 172 Ralph C. Anzivino, The Economic Loss Doctrine: Distin- guishing Economic Loss from Non-Economic Loss, 91 marQ. L. rev. 1082 (2008), hereinafter referred to as “Anzivino.” 173 Vincent R. Johnson, The Boundary-Line Function of the Economic Loss Rule, 66 wasH & Lee L. rev. 523, 528, and 584 (2009), hereinafter referred to as “Johnson.” 174 Johnson, supra note 173, at 546 (footnote omitted). 175 Anzivino, supra note 172, at 1081. 176 Id. 177 Johnson, supra note 173, at 575. 178 Id. at 580. See also, Anzivino, supra note 172, at 1109. 179 Johnson, supra note 173, at 576 and 578. 180 Id. See also, Anzivino, supra note 172, at 1117. 181 Id. at 524. 182 Id. at 527. 183 Id. at 568 (emphasis supplied). 184 Id. at 530. 185 Id. at 533. 186 Id. at 568. See also, Ralph C. Anzivino, supra note 172, at 1109.

16 contract claim,” the doctrine may not apply when a defendant had an “independent tort” duty to the plaintiff.187 Thus, when there is “a duty of care inde- pendent of any contractual obligations, the economic loss rule has no application and does not bar a plain- tiff ’s tort claim, because the claim is based on a recognized independent duty of care and thus falls outside the scope of the economic loss rule.”188 Fourth, the economic loss rule does not apply, and a tort action may be brought when “a defective prod- uct causes physical harm to a person or to property other than [to] the product itself” that is the subject of the parties’ contract.189 When other property is damaged by a breach of contract, the “‘other prop- erty’ damage…triggers tort liability.”190 However, the economic loss rule may preclude tort claims when the other property that was damaged was part of an “integrated system,” a principle adopted by most states in connection with the economic loss rule.191 When there is physical harm to an integrated system, only damages for economic losses are recov- erable for the product or integrated system that is the subject of the parties’ contract; there is no addi- tional remedy in tort.192 In sum, the economic loss doctrine “does not provide a ‘clear and predictable limit to liability’”; however, obtaining a “recovery in tort actions for purely economic losses is often difficult to obtain.”193 C. Uniform Computer Information Transactions Act The UCITA that applies to all computer informa- tion transactions “establishes rules where none exist now or improves present law[] and represents the first comprehensive uniform computer informa- tion licensing law.”194 Because of various groups’ opposition to UCITA, only Virginia and Maryland have enacted UCITA.195 Nevertheless, even in states that have not enacted UCITA, the courts may look to UCITA for guidance.196 UCITA is limited to “computer information trans- actions,”197 such as “an agreement…to create, modify, transfer, or license computer information or infor- mational rights in computer information.”198 The Act expressly excludes a contract that does not require that the information be furnished as computer infor- mation or a contract in which computer information is de minimis with respect to the primary subject matter of the transaction.199 Although UCITA and UCC Article 2 are similar in many ways,200 UCITA’s provisions are more favorable to licensors even when the licensees are businesses.201 Under UCITA, “any information transaction that transfers fewer than all rights in the information is automatically deemed to be a license, regardless of whether title to a copy is transferred.”202 Because UCITA applies to transactions in elec- tronic information, both licensors and licensees should be aware of UCITA’s provisions.203 For exam- ple, although UCITA generally permits transfer of a contractual interest under a license, the parties may agree to prohibit a transfer.204 Section 503 of UCITA provides that “a term prohibiting transfers of a party’s ‘contractual interest’ is enforceable.”205 Section 605 of UCITA “permits providers to enforce use restrictions on information through ‘automatic restraints’ if the agreement authorizes use of the restraint, and if the restraint prevents a use incon- sistent with the agreement.”206 187 Johnson, supra note 173, at 539–40. 188 Id. at 566 (quoting A.C. Excavating v. Yacht Club II Homeowners Ass’n, 114 P.3d 862, 866 (Colo. 2005)) (empha- sis in original). 189 Johnson, supra note 173, at 549 (emphasis in origi- nal). See also, Anzivino, supra note 172, at 1083–84. 190 Anzivino, supra note 172, at 1089. See also, id. at 1099–1103. 191 Id. at 1090 and N 66 (citing cases). The Restatement (Third) of Torts recognizes economic loss damage as dam- age to the product itself or its integrated system. See id. at 1116–17. 192 Anzivino, supra note 172, at 1092. 193 Johnson, supra note 173, at 534, 536 (footnote omitted). 194 William R. Denny, Overview of the Uniform Com- puter Information Transactions Act (UCITA) Report of the Joint Task Force of the Delaware Bar Association Sections of Commercial Law, Computer Law, Intellectual Property, and Real and Personal Property, at 1 (Jan. 5, 2000), http:// euro.ecom.cmu.edu/program/law/08-732/Transactions/ UCITAOverview.pdf (last accessed on Feb. 24, 2017). 195 Ward Classen, A Practical Guide to Software Licens- ing for Licensees and Licensors 266 (ABA 4th ed. 2010), hereinafter referred to as “Classen 4th ed.” 196 Rhone-Poulenc Agro v. Dekalb Genetics Corp., 284 F.3d 1323, 1331 (Fed. Cir. 2002) (stating that UCITA’s pro- visions regarding the “licensing of intangible property pro- vides guidance on the U.C.C.’s view of the common law”), cert. denied, Monsanto Co. v. Bayer CropScience, S.A., 123 S. Ct. 2668, 156 L. Ed.2d 655 (2003). 197 UCITA § 103(a). 198 UCITA § 102(11). 199 UCITA § 103(d)(5). 200 Nim Razook, The Politics and Promise of UCITA, 36 creigHton L. rev. 643 (2003). 201 Id. at 653. 202 Deborah Tussey, UCITA, Copyright, And Capture, 21 cardozo arts & ent. L. J. 319, 327 (2003) (footnote omit- ted), hereinafter cited as “Tussey.” 203 Id. at 326 (noting the argument that “UCITA expands the power of information providers to control information use through enforcement of restrictive license terms”). 204 UCITA, part V. 205 Tussey, supra note 202, at 339. 206 Id. at 330 (footnote omitted).