Advent Systems Limited was engaged primarily in the production of software for computers. As a result of its research and development efforts, Advent had developed an electronic document management system, a process for transforming engineering drawings and similar documents into a computer database. Unisys Corporation decided to market a document management system in the U.S. market. Advent and Unisys signed a “Distribution Agreement” in which Advent agreed to provide the software making up the document systems to be sold by Unisys. Advent was also obligated to provide sales and marketing materials and manpower as well as technical personnel to work with Unisys employees in building and installing the document systems. Unisys, however, later decided to develop its own document system and terminated the agreement with Advent. As a result, Advent sued Unisys for breach of contract. Although the trial court ruled that the UCC did not apply to this transaction, the court of appeals reversed, holding that the software developed by Advent was a good and not a service:

Computer programs are the product of an intellectual process, but once implanted in a medium are widely distributed to computer owners. An analogy can be drawn to a compact disc recording of an orchestral rendition. The music is produced by the artistry of musicians and in itself is not a ‘good,’ but when transferred to a laser-readable disc becomes a readily merchantable commodity. Similarly, when a professor delivers a lecture, it is not a good, but, when transcribed as a book, it becomes a good.

CASE QUESTIONS

1. Do you find the court’s analogy between music and software persuasive? Why?

2. In your opinion, would the agreement still have been classified as a transaction involving the sale of goods if Advent had not yet developed its software at the time it entered into its agreement with Unisys, or would it have been classified as the provision of a service?