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Advanced Licensing Agreements 2017
Volume Two
INTELLECTUAL PROPERTYCourse Handbook Series
Number G-1308
Co-ChairsMarcelo Halpern
Ira Jay LevyJoseph Yang
© Practising Law Institute
24
Open Source Issues and Opportunities (PowerPoint slides)
David G. Rickerby
Boston Technology Law, PLLC
If you find this article helpful, you can learn more about the subject by going to www.pli.edu to view the on demand program or segment for which it was written.
2-315
© Practising Law Institute
2-316
© Practising Law Institute
Ope
n So
urce
Issu
es a
nd
Opp
ortu
niti
es
Prac
ticin
gLa
wIn
stitu
teA
dvan
ced
Lice
nsin
g A
gree
men
ts 2
017
May
12th
2017
10
:45
AM
-12
:15
PMD
avid
G. R
icke
rby
2-317
© Practising Law Institute
Ove
rvie
w
Intr
oduc
tion
to O
pen
Sour
ce
Enfo
rced
Sha
ring
Man
agin
g O
pen
Sour
ce
2-318
© Practising Law Institute
Wha
t is
Ope
n So
urce
?
“Ope
n” “
Sour
ce”
–A
ny s
oftw
are
licen
sing
m
odel
that
mak
es th
e so
urce
ava
ilabl
e to
co
py, d
istr
ibut
e, m
odify
, etc
.
2-319
© Practising Law Institute
Wha
t is
Sour
ce C
ode?
The
hum
an re
adab
le v
ersi
on o
f the
cod
e.
Expo
ses
trad
e se
cret
s, in
terf
aces
, and
logi
c.
2-320
© Practising Law Institute
As
oppo
sed
to O
bjec
t Cod
e…
2-321
© Practising Law Institute
Ope
n So
urce
is B
ig B
usin
ess
AN
DR
OID
-D
ecla
red
licen
se: A
pach
e 2.
0~1
85 c
ompo
nent
s~1
9 di
ffere
nt O
SS
lice
nses
-m
ost r
ecip
roca
l
2-322
© Practising Law Institute
Man
y O
rgan
izat
ions
2-323
© Practising Law Institute
FFina
ncia
l Ser
vice
s
Aut
omot
ive
Mob
ile
Ever
ythi
ng
Hea
lthca
re
Solv
ing
Prob
lem
s in
Man
y In
dust
ries
2-324
© Practising Law Institute
So, w
hat’
s th
e bi
g de
al?
Why
isn’
t thi
s ju
st li
ke a
co
mm
erci
al li
cens
e?
In m
any
way
s th
ey a
re th
e sa
me:
Both
com
mer
cial
and
ope
n so
urce
lice
nses
are
bas
ed
on o
wne
rshi
p of
inte
llect
ual p
rope
rty.
Both
gra
nt c
erta
in r
ight
s an
d re
tain
oth
ers.
Both
are
gov
erne
d by
the
sam
e la
ws.
Both
may
incl
ude
prov
isio
ns w
hich
may
be
inco
mpa
tible
with
the
othe
r ty
pe o
f lic
ense
, and
, in
deed
with
oth
er li
cens
es o
f the
sam
e ty
pe.
2-325
© Practising Law Institute
But…
Ope
n So
urce
Lic
ense
s:
Tend
to h
ave
diff
eren
t goa
ls
Are
usu
ally
wri
tten
by
and
for
deve
lope
rs n
ot la
wye
rs
Enco
urag
e un
cont
rolle
d co
mbi
natio
n an
d re
use
of th
e IP
Form
a c
ontr
act i
n a
diff
eren
t way
than
mos
t com
mer
cial
lic
ense
s (in
fact
som
e ar
gue
they
don
’t fo
rm a
con
trac
t at a
ll –
mer
ely
act a
s a
perm
issi
on)
AN
D Som
eop
en s
ourc
e lic
ense
s im
pose
sha
ring
obl
igat
ions
on
use
rs
2-326
© Practising Law Institute
Two
Bas
ic S
choo
ls o
f Ope
n S
ourc
eFO
SS (F
ree
and
Ope
n So
urce
Sof
twar
e)
–Re
quir
es li
cens
or t
o m
ake
impr
ovem
ents
or
enha
ncem
ents
av
aila
ble
unde
r si
mila
r te
rms
–Pr
imar
y ex
ampl
e is
the
GPL
: Lic
ense
e m
ust d
istr
ibut
e “w
ork
base
d on
the
prog
ram
” an
d ca
use
such
wor
ks to
be
licen
sed
… u
nder
the
term
s of
the
GPL
Aca
dem
ic/P
erm
issi
ve
–M
odifi
catio
ns/e
nhan
cem
ents
may
rem
ain
prop
riet
ary
–D
istr
ibut
ion
in s
ourc
e co
de o
r ob
ject
cod
e pe
rmitt
ed
prov
ided
cop
yrig
ht n
otic
e &
liab
ility
dis
clai
mer
are
incl
uded
an
d co
ntri
buto
rs’ n
ames
are
not
use
d to
end
orse
pro
duct
s–
Prim
ary
exam
ples
: Ber
kele
y So
ftw
are
Dis
trib
utio
n (B
SD),
Apa
che
Soft
war
e Li
cens
e
2-327
© Practising Law Institute
Free
Sof
twar
e D
efin
ition
fro
m th
e Fr
ee S
oftw
are
Foun
datio
n
“Fre
e so
ftw
are”
is a
mat
ter
of li
bert
y, n
ot p
rice
. To
unde
rsta
nd th
e co
ncep
t, y
ou s
houl
d th
ink
of “
free
” as
in “
free
spe
ech,
” no
t as
in “
free
be
er.”
Free
sof
twar
e is
a m
atte
r of
the
user
s' fr
eedo
m to
run
, cop
y, d
istr
ibut
e,
stud
y, c
hang
e an
d im
prov
e th
e so
ftw
are.
Mor
e pr
ecis
ely,
it m
eans
that
th
e pr
ogra
m's
use
rs h
ave
the
four
ess
entia
l fre
edom
s:
The
free
dom
to r
un th
e pr
ogra
m, f
or a
ny p
urpo
se (f
reed
om 0
).
The
free
dom
to s
tudy
how
the
prog
ram
wor
ks, a
nd c
hang
e it
to m
ake
it do
wha
t you
wis
h (f
reed
om 1
). A
cces
s to
the
sour
ce c
ode
is a
pre
cond
ition
fo
r th
is.
The
free
dom
to r
edis
trib
ute
copi
es s
o yo
u ca
n he
lp y
our
neig
hbor
(f
reed
om 2
).
The
free
dom
to d
istr
ibut
e co
pies
of y
our
mod
ified
ver
sion
s to
oth
ers
(fre
edom
3).
By d
oing
this
you
can
giv
e th
e w
hole
com
mun
ity a
cha
nce
to
bene
fit fr
om y
our
chan
ges.
Acc
ess
to th
e so
urce
cod
e is
a p
reco
nditi
on fo
r th
is.
from
http
://w
ww
.gnu
.org
/phi
loso
phy/
free-
sw.h
tml
2-328
© Practising Law Institute
Prin
cipl
es o
f Ope
n So
urce
Lic
ensi
ng
from
the
Ope
n So
urce
Initi
ativ
e
1.Fr
ee[U
nres
tric
ted]
Redi
stri
butio
n
2.
Prog
ram
mus
t inc
lude
Sou
rce
Code
and
mus
t allo
w
dist
ribu
tion
in s
ourc
e co
de a
s w
ell a
s co
mpi
led
form
.
3.
Mus
t Allo
w M
odifi
catio
ns a
nd D
eriv
ed W
orks
4.
Inte
grity
of t
he A
utho
r's S
ourc
e Co
de
5.
No
Dis
crim
inat
ion
Aga
inst
Per
sons
or
Gro
ups
6.
No
Dis
crim
inat
ion
Aga
inst
Fie
lds
of E
ndea
vor
7.
Dis
trib
utio
n of
Lic
ense
–no
add
ition
al li
cens
e ca
n be
req
uire
d of
oth
ers
who
redi
stri
bute
the
pro
gram
8.
Lice
nse
Mus
t Not
Be
Spec
ific
to a
Pro
duct
9.
Lice
nse
Mus
t Not
Res
tric
t O
ther
Sof
twar
e
10.
Lice
nse
Mus
t Be
Tech
nolo
gy-N
eutr
al –
not p
redi
cate
d on
any
in
divi
dual
tech
nolo
gy from
http
://w
ww
.ope
nsou
rce.
org/
docs
/osd
2-329
© Practising Law Institute
78 C
urre
nt O
SI A
ppro
ved
Lice
nses
(ww
w.o
pens
ourc
e.or
g)
1.A
cade
mic
Fre
e Li
cens
e 3.
0 (A
FL-
3.0)
2.A
ffer
oG
ener
al P
ublic
Lic
ense
3.0
(A
GPL
-3.0
)3.
Ada
ptiv
e Pu
blic
Lic
ense
(APL
-1.0
)4.
Apa
che
Lice
nse
2.0
5.A
pple
Pub
lic S
ourc
e Li
cens
e 6.
Art
istic
lice
nse
2.0
7.A
ttri
butio
n A
ssur
ance
Lic
ense
s (A
AL)
8.BS
D 3
-Cla
use
"New
" or
"Re
vise
d"
Lice
nse
(BSD
-3-C
laus
e)9.
BSD
2-C
laus
e "S
impl
ified
" or
"F
reeB
SD"
Lice
nse
(BSD
-2-C
laus
e)10
.Bo
ost S
oftw
are
Lice
nse
(BSL
-1.0
)11
.Ce
CILL
Lice
nse
2.1
(CEC
ILL-
2.1)
12.
Com
pute
r A
ssoc
iate
s Tr
uste
d O
pen
Sour
ce L
icen
se 1
.1 (C
ATO
SL-
1.1)
13.
Com
mon
Dev
elop
men
t and
D
istr
ibut
ion
Lice
nse
1.0
(CD
DL-
1.0)
14.
Com
mon
Pub
lic A
ttri
butio
n Li
cens
e 1.
0 (C
PAL-
1.0)
15.
CUA
Off
ice
Publ
ic L
icen
se V
ersi
on
1.0
16.
EU D
ataG
rid
Soft
war
e Li
cens
e 17
.Ec
lipse
Pub
lic L
icen
se 1
.0 (E
PL-1
.0)
18.
eCos
Lice
nse
vers
ion
2.0
19.
Educ
atio
nal C
omm
unity
Lic
ense
, Ve
rsio
n 2.
0 (E
CL-2
.0)
20.
Eiff
el F
orum
Lic
ense
V2.
0 (E
FL-2
.0)
21.
Ente
ssa
Publ
ic L
icen
se (E
ntes
sa)
22.
Euro
pean
Uni
on P
ublic
Lic
ense
, Ve
rsio
n 1.
1 (E
UPL
-1.1
) 23
.Fa
ir L
icen
se (F
air)
24.
Fram
ewor
xLi
cens
e (F
ram
ewor
x-1.
0)
25.
Free
Pub
lic L
icen
se 1
.0.0
26.
GN
U A
ffer
oG
ener
al P
ublic
Lic
ense
v3
(AG
PL-3
.0)
27.
GN
U G
ener
al P
ublic
Lic
ense
ve
rsio
n 2.
0 (G
PL-2
.0)
28.
GN
U G
ener
al P
ublic
Lic
ense
ve
rsio
n 3.
0 (G
PL-3
.0)
29.
GN
U L
ibra
ry o
r "L
esse
r" G
ener
al
Publ
ic L
icen
se v
ersi
on 2
.1 (L
GPL
-2.
1)30
.G
NU
Lib
rary
or
"Les
ser"
Gen
eral
Pu
blic
Lic
ense
ver
sion
3.0
(LG
PL-
3.0)
31.
His
tori
cal P
erm
issi
on N
otic
e an
d D
iscl
aim
er (H
PND
)32
.IB
M P
ublic
Lic
ense
1.0
(IPL
-1.0
)33
.IP
A F
ont L
icen
se (I
PA)
34.
ISC
Lice
nse
(ISC)
35.
LaTe
XPr
ojec
t Pub
lic L
icen
se 1
.3c
36.
Lice
nce
Libr
edu
Que
bec
–Pe
rmis
sive
v.1
.1
37.
Lice
nse
Libr
edu
Que
bec
–Re
cipr
ocite
38.
Lice
nse
Libr
ede
Que
bec-
Reci
prio
teFo
rte
39.
Luce
nt P
ublic
Lic
ense
Ver
sion
1.0
2 40
.M
irO
SLi
cenc
e(M
irO
S)41
.M
icro
soft
Pub
lic L
icen
se (M
S-PL
)42
.M
icro
soft
Rec
ipro
cal L
icen
se (M
S-RL
)43
.M
IT li
cens
e (M
IT)
44.
Mot
osot
oLi
cens
e (M
otos
oto)
45.
Moz
illa
Publ
ic L
icen
se 2
.0 (M
PL-
2.0)
46.
Mul
tics
Lice
nse
(Mul
tics)
47.
NA
SA O
pen
Sour
ce A
gree
men
t 1.3
48
.N
TP L
icen
se (N
TP)
49.
Nau
men
Publ
ic L
icen
se (N
aum
en)
50.
Net
hack
Gen
eral
Pub
lic L
icen
se
51.
Nok
ia O
pen
Sour
ce L
icen
se (N
okia
)52
.N
on-P
rofit
Ope
n So
ftw
are
Lice
nse
3.0
53.
OCL
C Re
sear
ch P
ublic
Lic
ense
2.0
54
.O
pen
Gro
up T
est S
uite
Lic
ense
55
.O
pen
Soft
war
e Li
cens
e 3.
0 (O
SL-
3.0)
56.
OSE
T Pu
blic
Lic
ense
ver
sion
2.1
57
.PH
P Li
cens
e 3.
0 (P
HP-
3.0)
58.
The
Post
greS
QL
Lice
nse
(Pos
tgre
SQL)
59.
Pyth
on L
icen
se (P
ytho
n-2.
0)
60.
CNRI
Pyt
hon
licen
se (C
NRI
-Pyt
hon)
(C
NRI
por
tion
of P
ytho
n Li
cens
e)61
.Q
Pub
lic L
icen
se (Q
PL-1
.0)
62.
Real
Net
wor
ksPu
blic
Sou
rce
Lice
nse
V1.0
(RPS
L-1.
0)63
.Re
cipr
ocal
Pub
lic L
icen
se 1
.5
64.
Rico
h So
urce
Cod
e Pu
blic
Lic
ense
65
.Si
mpl
e Pu
blic
Lic
ense
2.0
(Sim
PL-
2.0)
66.
Slee
pyca
tLic
ense
(Sle
epyc
at)
67.
Sun
Publ
ic L
icen
se 1
.0 (S
PL-1
.0)
68.
Syba
se O
pen
Wat
com
Publ
ic
Lice
nse
1.0
(Wat
com
-1.0
)69
.U
nive
rsity
of I
llino
is/N
CSA
Ope
n So
urce
Lic
ense
(NCS
A)
70.
Uni
vers
al P
erm
issi
ve L
icen
se (U
PL)
71.
Vovi
daSo
ftw
are
Lice
nse
v. 1
.0
72.
W3C
Lic
ense
(W3C
)73
.w
xWin
dow
sLi
brar
y Li
cens
e (W
Xwin
dow
s)74
.X.
Net
Lice
nse
(Xne
t)75
.Ze
ro C
laus
e BS
D L
icen
se76
.Zo
pePu
blic
Lic
ense
2.0
(ZPL
-2.0
)77
.zl
ib/l
ibpn
glic
ense
(Zlib
)
2-330
© Practising Law Institute
10 M
ost
Com
mon
Ope
n So
urce
Lic
ense
s
Note
: The
table
above
lis
ts t
he
top lic
ense
s th
at a
re u
sed in o
pen
sourc
e pro
ject
s ra
nke
d b
y num
ber
of
pro
ject
s usi
ng t
he
licen
se,
acco
rdin
g t
o t
he
Bla
ck D
uck
Soft
war
e Know
ledgeB
ase.
This
dat
a w
as p
ulle
d o
n
Oct
ob
er
20
, 2
01
6.
1.M
IT L
icen
se28
%
2.G
NU
Gen
eral
Pub
lic L
icen
se (G
PL)
2.0
20
%3.
Apa
che
Lice
nse
2.0
16%
4.G
NU
Gen
eral
Pub
lic L
icen
se (G
PL)
3.0
8%
5.B
SD
Lic
ense
2.0
(3-c
laus
e, N
ew o
r Rev
ised
) Lic
ense
6%
6.A
rtist
ic L
icen
se (P
erl)
4%
7.G
NU
Les
ser G
ener
al P
ublic
Lic
ense
(LG
PL)
2.1
4%
8.IS
C L
icen
se4%
9.G
NU
Les
ser G
ener
al P
ublic
Lic
ense
(LG
PL)
3.0
2%
10.
Mic
roso
ft P
ublic
Lic
ense
2%
2-331
© Practising Law Institute
An
over
sim
plifi
ed s
umm
ary:
FOSS
Lic
ense
s (G
PL2,
GPL
3, A
ffer
oG
PL, L
GPL
) are
goi
ng
to r
equi
re y
ou to
mak
e th
e so
urce
cod
e av
aila
ble
unde
r th
e sa
me
licen
sefo
r the
ope
n so
urce
pro
gram
and
for
any
wor
k yo
u di
stri
bute
whi
ch is
bas
ed o
n th
e pr
ogra
m.
Man
y ot
her O
pen
Sour
ce li
cens
es (M
ozill
a, C
PL) a
re
goin
g to
requ
ire
you
to m
ake
avai
labl
e m
odifi
catio
ns y
ou
mak
e to
the
open
sou
rce
prog
ram
, but
not
wor
ks w
hich
in
terf
ace
with
it.
A fe
w o
pen
sour
ce li
cens
es (A
pach
e, B
SD) a
re g
oing
to
let y
ou d
o pr
etty
muc
h w
hate
ver y
ou w
ant w
ith th
e co
de
as lo
ng a
s yo
u gi
ve a
ppro
pria
te c
redi
t and
dis
clai
m a
ll w
arra
ntie
s an
d lia
bilit
y (t
here
is n
o su
ch th
ing
as a
free
lu
nch)
.
2-332
© Practising Law Institute
Enfo
rced
Sha
ring
: GPL
v2
“[T]
he in
tent
is to
exe
rcis
e th
e ri
ght t
o co
ntro
l the
di
stri
butio
n of
der
ivat
ive
or c
olle
ctiv
ew
orks
bas
ed o
n th
e Pr
ogra
m.”
“You
mus
t cau
se a
ny w
ork
that
you
dis
trib
ute
or
publ
ish,
that
in w
hole
or i
n pa
rt c
onta
ins
or is
de
rive
dfr
om th
e Pr
ogra
m o
r an
y pa
rt th
ereo
f, to
be
licen
sed
as a
who
le a
t no
cha
rge
to a
ll th
ird
part
ies
unde
r th
e te
rms
of th
is L
icen
se.”
http
://w
ww.
gnu.
org/
licen
ses/
gpl.h
tml
2-333
© Practising Law Institute
Enf
orce
d S
harin
g: L
GP
L
5.A
pro
gram
that
con
tain
s no
der
ivat
ive
of a
ny p
ortio
n of
the
Libr
ary,
but
is d
esig
ned
to w
ork
with
the
Libr
ary
by b
eing
co
mpi
led
or li
nked
with
it, i
s ca
lled
a "w
ork
that
use
s th
e Li
brar
y". S
uch
a w
ork,
in is
olat
ion,
is n
ot a
der
ivat
ive
wor
k of
th
e Li
brar
y, a
nd th
eref
ore
falls
out
side
the
scop
e of
this
Lic
ense
.
How
ever
, lin
king
a "
wor
k th
at u
ses
the
Libr
ary"
wit
h th
e Li
brar
y cr
eate
s an
exe
cuta
ble
that
is a
der
ivat
ive
of th
e Li
brar
y (b
ecau
se it
con
tain
s po
rtio
ns o
f the
Lib
rary
), ra
ther
than
a
"wor
k th
at u
ses
the
libra
ry".
The
exe
cuta
ble
is th
eref
ore
cove
red
by th
is L
icen
se. S
ecti
on 6
sta
tes
term
s fo
r di
stri
buti
on
of s
uch
exec
utab
les.
http
://w
ww
.gnu
.org
/lice
nses
/lgpl
.htm
l
2-334
© Practising Law Institute
Enfo
rced
Sha
ring
: LG
PL
http
://w
ww
.gnu
.org
/lice
nses
/lgpl
.htm
l
6.A
s an
exc
eptio
n to
the
Sect
ions
abo
ve, y
ou m
ay a
lso
com
bine
or l
ink
a "w
ork
that
us
es th
e Li
brar
y" w
ith th
e Li
brar
y to
pro
duce
a w
ork
cont
aini
ng p
ortio
ns o
f the
Li
brar
y, a
nd d
istr
ibut
e th
at w
ork
unde
r ter
ms
of y
our c
hoic
e, p
rovi
ded
that
the
te
rms
perm
it m
odifi
cati
on o
f the
wor
k fo
r th
e cu
stom
er's
ow
n us
e an
d re
vers
e en
gine
erin
g fo
r de
bugg
ing
such
mod
ifica
tion
s.
You
mus
t giv
e pr
omin
ent n
otic
e w
ith e
ach
copy
of t
he w
ork
that
the
Libr
ary
is u
sed
in it
and
that
the
Libr
ary
and
its u
se a
re c
over
ed b
y th
is L
icen
se. Y
ou m
ust s
uppl
y a
copy
of t
his
Lice
nse.
If th
e w
ork
durin
g ex
ecut
ion
disp
lays
cop
yrig
ht n
otic
es, y
ou
mus
t inc
lude
the
copy
right
not
ice
for t
he L
ibra
ry a
mon
g th
em, a
s w
ell a
s a
refe
renc
e di
rect
ing
the
user
to th
e co
py o
f thi
s Li
cens
e. A
lso,
you
mus
t do
one
of
thes
e th
ings
:
a)A
ccom
pany
the
wor
k w
ith th
e co
mpl
ete
corr
espo
ndin
g m
achi
ne-r
eada
ble
sour
ce
code
for t
he L
ibra
ry in
clud
ing
wha
teve
r cha
nges
wer
e us
ed in
the
wor
k …
b)U
se a
sui
tabl
e sh
ared
libr
ary
mec
hani
sm fo
r lin
king
with
the
Libr
ary.
…
c)A
ccom
pany
the
wor
k w
ith a
writ
ten
offe
r, va
lid fo
r at l
east
thre
e ye
ars,
to g
ive
the
sam
e us
er th
e m
ater
ials
spe
cifie
d in
Sub
sect
ion
6a, a
bove
, for
a c
harg
e no
mor
e th
an th
e co
st o
f per
form
ing
this
dis
trib
utio
n. …
2-335
© Practising Law Institute
Enfo
rced
Sha
ring
: GPL
v3
You
may
con
vey
a co
vere
d w
ork
in o
bjec
t cod
e fo
rm u
nder
the
term
s of
se
ctio
ns 4
and
5, p
rovi
ded
that
you
als
o co
nvey
the
mac
hine
-rea
dabl
e Co
rres
pond
ing
Sour
ce u
nder
the
term
s of
this
Lic
ense
…
A “
cove
red
wor
k” m
eans
eith
er th
e un
mod
ified
Pro
gram
or a
wor
k ba
sed
on th
e Pr
ogra
m.
To “
prop
agat
e” a
wor
k m
eans
to d
o an
ythi
ng w
ith it
that
, with
out
perm
issi
on, w
ould
mak
e yo
u di
rect
ly o
r sec
onda
rily
liabl
e fo
r inf
ringe
men
t un
der a
pplic
able
cop
yrig
ht la
w, e
xcep
t exe
cutin
g it
on a
com
pute
r or
mod
ifyin
g a
priv
ate
copy
. Pro
paga
tion
incl
udes
cop
ying
, dis
trib
utio
n (w
ith
or w
ithou
t mod
ifica
tion)
, mak
ing
avai
labl
e to
the
publ
ic, a
nd in
som
e co
untr
ies
othe
r act
iviti
es a
s w
ell.
To “
conv
ey”
a w
ork
mea
ns a
ny k
ind
of p
ropa
gatio
n th
at e
nabl
es o
ther
pa
rtie
s to
mak
e or
rece
ive
copi
es. M
ere
inte
ract
ion
with
a u
ser t
hrou
gh a
co
mpu
ter n
etw
ork,
with
no
tran
sfer
of a
cop
y, is
not
con
veyi
ng.
2-336
© Practising Law Institute
Enfo
rced
Sha
ring
: Wha
t is
a D
eriv
ativ
e W
ork?
The
Copy
righ
t Act
doe
sn’t
rea
lly h
elp
for
Soft
war
e:
§10
1,
A “
deri
vativ
e w
ork”
is a
wor
k ba
sed
upon
one
or
mor
e pr
eexi
stin
g w
orks
, suc
h as
a tr
ansl
atio
n, m
usic
al a
rran
gem
ent,
dr
amat
izat
ion,
fict
iona
lizat
ion,
mot
ion
pict
ure
vers
ion,
sou
nd
reco
rdin
g, a
rt r
epro
duct
ion,
abr
idgm
ent,
con
dens
atio
n, o
r an
y ot
her
form
in w
hich
a w
ork
may
be
reca
st, t
rans
form
ed, o
r ad
apte
d.
A w
ork
cons
istin
g of
edi
tori
al r
evis
ions
, ann
otat
ions
, ela
bora
tions
, or
oth
er m
odifi
catio
ns w
hich
, as
a w
hole
, rep
rese
nt a
n or
igin
al w
ork
of a
utho
rshi
p, is
a “
deri
vativ
e w
ork.
”
§10
2(b)
, In
no
case
doe
s co
pyri
ght p
rote
ctio
n fo
r an
ori
gina
l wor
k of
aut
hors
hip
exte
nd to
any
idea
, pro
cedu
re, p
roce
ss, s
yste
m,
met
hod
of o
pera
tion,
con
cept
, pri
ncip
le, o
r di
scov
ery,
reg
ardl
ess
of
the
form
in w
hich
it is
des
crib
ed, e
xpla
ined
, illu
stra
ted,
or
embo
died
in s
uch
wor
k.
2-337
© Practising Law Institute
Abs
trac
tion,
Filt
ratio
n, C
ompa
riso
n Te
st
–2nd
, 5th
, 10th
and
11th
Circ
uit,
Com
pute
r A
ssoc
iate
s In
tl., I
nc.
v. A
ltai,
Inc.
, 982
F.2
d 69
3 (2
nd C
ir. 1
992)
;
Abs
trac
t fr
om th
e or
igin
al p
rogr
am it
s co
nstit
uent
st
ruct
ural
par
ts.
Filte
r un
prot
ecte
d po
rtio
ns (i
ncor
pora
ted
idea
s,
expr
essi
on n
eces
sary
to th
ose
idea
s, a
nd p
ublic
dom
ain
elem
ents
).
Com
pare
any
and
all
rem
aini
ng c
reat
ive
expr
essi
on w
ith
stru
ctur
e of
2nd
prog
ram
to d
eter
min
e w
heth
er
deri
vativ
e.
–1st
Circ
uit h
as a
mod
ified
ver
sion
that
app
lies
the
test
onl
y af
ter
filte
ring
out
§10
2(b)
unp
rote
cted
ele
men
ts –
part
icul
arly
met
hods
of o
pera
tion
or c
ontr
ol.
(Lot
us
Dev
elop
men
t Cor
p. v
. Bor
land
Int’
l., In
c., 4
9 F.
3d 8
07 (1
st C
ir.
1995
)).
Enfo
rced
Sha
ring
: Wha
t is
a D
eriv
ativ
e W
ork?
2-338
© Practising Law Institute
Ana
lytic
Dis
sect
ion
Test
9th
Circ
uit h
as a
dopt
ed th
e an
alyt
ic d
isse
ctio
n te
st (A
pple
Co
mpu
ter,
Inc.
v. M
icro
soft
Cor
p., 3
5 F.
3d 1
435
(9th
Cir
. 199
4))
Are
ther
e su
bsta
ntia
l sim
ilari
ties
in b
oth
the
idea
s an
d ex
pres
sion
s of
the
wor
ks?
Are
the
sim
ilar
feat
ures
(if a
ny) p
rote
cted
by
copy
righ
t?
“Thi
n” p
rote
ctio
n is
giv
en to
non
-cop
yrig
htab
le fa
cts
or id
eas
that
ar
e pr
otec
tabl
e be
caus
e of
how
they
are
com
bine
d/pr
esen
ted.
“B
road
” pr
otec
tion
is g
iven
to c
opyr
ight
able
exp
ress
ion.
Dep
endi
ng o
n th
e de
gree
of p
rote
ctio
n, c
ourt
set
s st
anda
rd fo
r co
mpa
riso
n of
wor
ks a
s a
who
le to
det
erm
ine
if de
riva
tive.
“Th
in”
prot
ectio
n re
quir
es v
irtu
ally
iden
tical
; “br
oad”
pro
tect
ion
requ
ires
on
ly a
“su
bsta
ntia
l sim
ilari
ty.”
Enfo
rced
Sha
ring
: Wha
t is
a D
eriv
ativ
e W
ork?
2-339
© Practising Law Institute
Ora
cle
v. G
oogl
e –
prot
ectio
n of
API
s
In 2
012,
Dis
tric
t Co
urt d
ecid
ed th
at th
e co
mm
and
stru
ctur
e an
d ta
xono
my
of th
e A
PIs
wer
e no
t pro
tect
able
und
er c
opyr
ight
law
.
On
May
9, 2
014,
the
Fede
ral C
ircu
it pa
rtia
lly r
ever
sed
the
dist
rict
co
urt r
ulin
g, r
ulin
g in
Ora
cle'
s fa
vor
on th
e co
pyri
ghta
bilit
yis
sue,
an
d re
man
ded
the
issu
e of
fair
use
to th
e di
stri
ct c
ourt
.
A p
etiti
on fo
r ce
rtio
rari
was
den
ied
by th
e U
nite
d St
ates
Su
prem
e Co
urt o
n Ju
ne 2
9, 2
015.
A s
econ
d tr
ial b
egan
on
May
9, 2
016
–O
racl
e re
ques
ted
8.8B
in
dam
ages
.
The
tria
l jur
y si
ded
in fa
vor
of G
oogl
e, r
ulin
g th
e ac
tion
to b
e fa
ir
use.
(May
29,
201
6).
Enfo
rced
Sha
ring
: Wha
t is
a D
eriv
ativ
e W
ork?
2-340
© Practising Law Institute
> A
N O
VER
SIM
IPLI
FACT
ION
OF
A C
OM
PLEX
CA
SE
Goo
gle
wro
te it
s ow
n ve
rsio
n of
Java
for
And
roid
usi
ng th
e sa
me
“tax
onom
y of
all
the
nam
es o
f met
hods
, cla
sses
, int
erfa
ces,
and
pa
ckag
es”
as O
racl
e’s
Java
.
Que
stio
n as
to c
opyr
ight
abili
tyof
a ta
xono
my/
API
. Arg
umen
t tha
t thi
s el
emen
t of s
oftw
are
is p
urel
y fu
nctio
nal a
nd n
eces
sary
for
tech
nolo
gy
syst
ems
to s
peak
to o
ne a
noth
er.
Fede
ral C
ircu
it ov
erru
led
Dis
tric
t Cou
rt fi
ndin
g en
ough
cre
ativ
ity fo
r co
pyri
ght p
urpo
ses,
but
sen
t cas
e ba
ck fo
r re
tria
l on
the
ques
tion
of F
air
Use
.
Goo
gle
won
the
retr
ial r
ulin
g th
e ac
tion
to b
e fa
ir u
se.
Broa
d im
plic
atio
ns fo
r us
e op
en s
ourc
e. D
oes
inte
rope
rabi
lity
mak
e ev
eryt
hing
der
ivat
ive?
Enfo
rced
Sha
ring
: Wha
t is
a D
eriv
ativ
e W
ork?
2-341
© Practising Law Institute
Keys
to
Ope
n So
urce
The
key
to a
ny o
pen
sour
ce a
naly
sis
is th
e sa
me:
–Kn
ow a
nd u
nder
stan
d th
e fa
cts
–Re
ad th
e lic
ense
–Kn
ow th
e no
rms
of th
e co
mm
unity
from
whi
ch y
ou
are
taki
ng th
e so
urce
–Pl
ay n
ice
2-342
© Practising Law Institute
GPL
v3,
LG
PL v
3, A
GPL
Oth
er c
omm
erci
al c
once
rns:
–A
nti-D
RM
“No
cove
red
wor
k sh
all b
e de
emed
par
t of a
n ef
fect
ive
tech
nolo
gica
l mea
sure
und
er a
ny a
pplic
able
law
fulfi
lling
ob
ligat
ions
und
er a
rtic
le 1
1 of
the
WIP
O c
opyr
ight
trea
ty
adop
ted
on 2
0 D
ecem
ber
1996
, or
sim
ilar l
aws
proh
ibiti
ng o
r re
stri
ctin
g ci
rcum
vent
ion
of s
uch
mea
sure
s. “
–A
nti-t
ivoi
zatio
nIf
you
conv
ey a
n ob
ject
cod
e w
ork
... in
, or
with
, or
spec
ifica
lly
for
use
in, a
Use
r Pr
oduc
t, a
nd th
e co
nvey
ing
occu
rs a
s pa
rt o
f a
tran
sact
ion
in w
hich
the
righ
t of p
osse
ssio
n an
d us
e of
the
Use
r Pr
oduc
t is
tran
sfer
red
to th
e re
cipi
ent i
n pe
rpet
uity
or
for
a fix
ed te
rm (r
egar
dles
s of
how
the
tran
sact
ion
is c
hara
cter
ized
), th
e Co
rres
pond
ing
Sour
ce ..
. mus
t be
acco
mpa
nied
by
the
Inst
alla
tion
Info
rmat
ion.
–Pa
tent
Lic
ense
Gra
nt /
Pate
nt N
on-A
sser
tion
as L
icen
se C
ondi
tion
–A
GPL
Com
patib
ility
2-343
© Practising Law Institute
Focu
s is
Com
plia
nce
Com
pani
es a
re a
dopt
ing
open
sou
rce
polic
ies
and
proc
esse
s:–
To a
llevi
ate
litig
atio
n co
ncer
ns–
As
an im
port
ant M
&A
Issu
e–
To c
ompl
y w
ith C
usto
mer
dili
genc
e–
Mor
e pa
rtic
ipat
ion
in o
pen
sour
ce
com
mun
ities
: wha
t are
you
r em
ploy
ees
cont
ribu
ting?
2-344
© Practising Law Institute
Elem
ents
for a
n O
pen
Sour
ce P
rogr
am?
Publ
ishe
d Po
licy
Ope
n So
urce
Pro
cess
Ow
ner
App
rova
l Pro
cess
esM
onito
ring
& T
rack
ing
Proc
ess
Obl
igat
ion
Veri
ficat
ion
Proc
ess
And
…
As
muc
h as
I’d
like
to s
ell y
ou m
y se
rvic
es, t
his
is
OPE
N S
OU
RCE,
so
chec
k ou
t ht
tp:/
/ww
w.li
nuxf
ound
atio
n.or
g/pr
ogra
ms/
lega
l/c
ompl
ianc
efo
r sa
mpl
e po
licie
s.
2-345
© Practising Law Institute
Be R
eady
to C
ompl
y w
ith th
e Le
tter
of
the
Requ
irem
ents
Free
Sof
twar
e Fo
unda
tion’
s co
mpl
ianc
e gu
ide
-ht
tp:/
/cop
ylef
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Que
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Cloud Computing Legal Issues
Peter J. Kinsella
Perkins Coie LLP
The information provided in this presentation does not necessarily reflect the opinions of Perkins Coie LLP, its clients or even the author.
If you find this article helpful, you can learn more about the subject by going to www.pli.edu to view the on demand program or segment for which it was written.
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BIOGRAPHICAL INFORMATION
Pete Kinsella is a partner in Perkins Coie’s Technology, Transactions & Privacy practice. He advises clients on domestic and international licensing, technology and intellectual property matters and is a frequent lecturer on these topics. He has been repeatedly recognized for his legal excellence and was recently named, for the third time in the past four years as Best Lawyer’s “Denver Technology Lawyer of the Year.” Prior to joining Perkins Coie, Pete was a partner with Faegre & Benson and held various in-house legal positions with U S WEST (now CenturyLink) and Honeywell. Contact Information Peter J. Kinsella [email protected] 303-291-2300
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1. WHAT IS CLOUD COMPUTING?
a. Although cloud computing has many definitions, generally, cloud computing is the delivery of shared resources or services via the internet. Typically, the resources that are used to provide the cloud computing services: i. are pooled; ii. can be rapidly adjusted; iii. are location independent; iv. are widely accessible; and, v. are paid for based on usage.
b. A variety of computing services and resources are available as cloud services, including: content (such as streaming audio, video or other information), storage, computing resources, and security threat detection.
c. In many applications, users access the cloud services by either using a web browser or a special application from their computer or portable device.
2. SIGNIFICANT FACTORS DRIVING THE GROWTH OF CLOUD COMPUTING
a. There are several factors driving the growth of cloud computing. i. Costs associated with maintaining a traditional internal data
center can be reduced by using cloud services, because the cloud resources are typically shared with other customers.
ii. Cloud services provide the ability to quickly increase or reduce resources to meet demand. This allows a customer to use computing power or storage, on an as needed basis, rather than having to permanently build out their own data center.
iii. Cloud services provide the ability to have a third party monitor and rapidly deploy security patches and other upgrades.
iv. Many small and medium sized businesses find that cloud service providers have more expertise than the business can inde-pendently hire.
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3. DIFFERENT WAYS TO CATEGORIZE CLOUD COMPUTING SERVICES
a. Single Tenant vs. Shared Multi-Tenant i. Single Tenant Model
1. Resources may be administered on a customer by cus-tomer basis (e.g., patches could be applied as required by each customer)
2. Model may be more costly may present scalability issues ii. Shared Multi-Tenant
1. Application is comprised of a single integrated code base that is delivered to multiple customers (e.g., each customer gets the same thing, but different functions may be enabled or disabled)
2. May be more difficult to implement customizations on a customer by customer basis
b. CaaS vs. Saas vs. PaaS vs. IaaS i. Content as a Service (CaaS) - Delivers content to users
1. Examples: Amazon downloadable books; Wall Street Journal mobile application
ii. Software as a Service (SaaS) - Provides access to software over the internet, thereby eliminating the need to install and run the software application on the user’s machine 1. Examples: Google Apps, Gmail
iii. Platform as a Service (PaaS) - Delivers a platform (a cloud operating system) via the internet and allows “cloud applica-tions” to be built on top of it 1. Examples: Windows Azure
iv. Infrastructure as a Service (IaaS) - allows customers to rent underlying computer resources, such as servers, storage and firewall protection 1. Examples: Box, Dropbox, Amazon EC2
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c. Private vs. Public Cloud Computing i. A public cloud infrastructure provides resources (such as com-
puter applications or storage services) that are shared between multiple unrelated customers.
ii. A private cloud infrastructure typically provides dedicated resources for a single organization. Those resources may be located at the organization’s facilities or from an external location.
iii. A community cloud infrastructure provides shared resources between several organizations from a specific community with common concerns (security, compliance, jurisdiction, etc.).
iv. A hybrid cloud has combined elements of private, community, or public cloud services.
4. FREQUENTLY RAISED ISSUES IN CLOUD SERVICE CONTRACTS
a. Enforceability of Clickwrap and Browsewrap. i. Courts apply traditional principles of contract law to assess
the enforceability of online agreements, focusing on whether the party challenging enforcement had reasonable notice of and manifested assent to the terms.1 Generally, courts differen-tiate online agreements between “clickwrap” agreements and “browsewrap” agreements. A clickwrap agreement appears on an internet webpage and requires that a customer agree to any terms or conditions by engaging in some affirmative act, such as by clicking on a check box on the screen, in order to proceed with the internet transaction. In contrast, a “browsewrap” agree-ment occurs where the website provides customers with the ability to view the terms of the agreement, such as through a hyperlink at the bottom of a web page, but does not otherwise require that the customers take any affirmative action to signify their assent to the agreement.
1. Vernon v. Qwest Commc’ns. Int’l , Inc., 857 F.Supp.2d 1135, 1149 (D. Colo. 2012);
Feldman v. Google, Inc., 513 F. Supp. 2d 229, 236 (E.D. Pa. 2007); Barnett v. Network Solutions, Inc., 38 S.W.3d 200, 203-04 (Tex.App. 2001, pet. denied).
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ii. Courts routinely enforce clickwrap agreements because notice and assent are more easily established.2 In contrast, the enforce-ability of browsewrap agreements involves a more fact-sensitive inquiry in which courts determine whether the customer has “actual or constructive knowledge” of the contract prior to being bound.3 Actual knowledge is most often obtained through a defendant’s admission of knowledge of the site terms or through the presence of a cease and desist letter that advises the defend-ant of the existence of such terms.4 Alternatively, constructive knowledge is typically found where reasonable notice of the terms is provided such that the court can impute knowledge of their existence to the customer.5 Courts have found notice to be sufficient to impute knowledge where a website provided prominent notice of the hyperlinked terms with easy access to the full agreement.6 In contrast, courts have held browsewrap
2. See U.S. v. Drew, 259 F.R.D. 449, 462 n. 22 (C.D. Cal. 2009); see also Peters v.
Amazon Services LLC, NO. C13–480MJP, 2013 WL 7872692 (W.D. Wash. Nov. 5, 2013) (enforcing agreement where plaintiff clicked a box indicating he had read and agreed to the “Agreement;” the underlined word “Agreement” included a hyperlink to the relevant terms.); Kwan v. Clearwire Corp., NO. C09-1392JLR, 2012 WL 32380 (W.D. Wash. Jan. 3, 2012); (assuming that if plaintiff had clicked the “I accept terms” button on defendant’s website prior to accessing the internet with her modem that she would have been bound by the Terms of Service); Doe v. Project Fair Bid Inc., No. C11–809 MJP, 2011 WL 3516073, (W.D. Wash., Aug. 11, 2011); Vernon v. Qwest Commc’ns Int’l, Inc., 925 F.Supp. 2d 1185, 1191 (D.Colo. 2013) (“clickwrap agreements are increasingly common and ‘have routinely been upheld’) (quoting Smallwood v. NCsoft Corp., 730 F.Supp.2d 1213, 1226 (D.Haw. 2010); Fieldtech Avionics & Instruments v. Component Control.Com, Inc., 262 S.W.3d 813, 818 n.1 (Tex.App. 2008) (“Texas courts recognize the validity of clickwrap agreements.”) (citing RealPage, Inc. v. EPS, Inc., 560 F. Supp. 2d 539, 545 (E.D. Tex. 2007)).
3. See Southwest Airlines Co. v. BoardFirst, LLC, 2007 WL 4823761, at *5 (N.D. Tex. Sept.12, 2007).
4. See id. 5. Snap-on Bus. Solutions, Inc. v. O’Neil & Assoc., 708 F. Supp. 2d 669, 681 (N.D.
Ohio 2010). 6. See, e.g., Register.com, Inc. v. Verio, Inc., 356 F.3d 393 (2d Cir. 2004) (imputing
knowledge of web site’s terms of use to repeated user of Register.com’s database); Major v. McCallister, 302 S.W.3d 227 (Mo. Ct. App. 2009) (upholding browsewrap agreement where each web page contained “immediately visible notice of existence of license terms” and hyperlink to those terms); Southwest Airlines Co. v. BoardFirst, L.L.C., 2007 WL 4823761 (N.D. Tex. 2007) (holding that the defendant had knowledge of and therefore was bound by Southwest’s website Terms and Conditions of Use at least as of the time it was sent a cease and desist letter); Hotels.com, L.P. v. Canales, 195 S.W.3d 147, 154-56 (Tex. App. 2006) (holding that notice of hyperlinked terms
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agreements unenforceable where customers were required to scroll down below the fold (i.e., to a secondary or submerged screen) to see the hyperlinked notice, an action which was not necessary to complete their transaction.7
b. Authority to Bind i. Generally, an agent can bind his principal when the agent has
either actual or apparent authority or if the principal ratifies the agent’s agreement.8 Actual authority may be express or implied, and is triggered by the principal’s objective manifestations to the agent. 9With apparent authority, the manifestations are made to a third person, and must be made by the principal rather than the purported agent.10 The principal’s manifestations will support a finding of apparent authority only if (1) they cause the one claiming apparent authority to actually or subjectively believe that the purported agent has authority to act for the principal and (2) the claimant’s actual, subjective belief is objec-tively reasonable.11 Such objective manifestations to third parties do not necessarily need to come directly from the principal, but rather can also arise “from authorized statements of the agent.”12 Whether apparent authority exists is normally a question of fact.13 A principal ratifies an agent’s agreement if the principal,
immediately above an “I agree” button next to a click box may be sufficient notice and manifestation of assent).
7. Specht v. Netscape, 306 F.3d 17 (2d Cir. 2002); Hines v. Overstock, 668 F. Supp. 2d 362, 367 (E.D.N.Y. 2009), aff’d, 2010 WL 2203030 (2d Cir. June 3, 2010) (slip copy); In re Zappos.com, Inc., Customer Data Sec. Breach Litig., No. 12-325, 2012 WL 4466660 (D. Nev. Sep. 27, 2012).
8. See King v. Riveland, 125 Wn. 2d 500, 507 (1994); Hoglund v. Meeks, 139 Wn. App. 854 (2007). Colorado and Texas courts’ jurisprudence on apparent authority and principals’ ratifications of agents’ agreements generally mirror Washington decisions on the subject; therefore, Colorado and Texas’ case law is not specifically addressed in this section. See Carl’s Italian Restaurant v. Trucks Ins. Exchange, 183 P.3d 636, 640-41 (Colo. App. 2007); Gaines v. Kelly, 235 S.W.3d 179, 182-83 (Tex. 2007).
9. Carl’s Italian Restaurant, 183 P.3d at 640-41; Gaines, S.W.3d at 182-83; King v. Riveland, 125 Wn. 2d at 507.
10. Carl’s Italian Restaurant, 183 P.3d at 640-41; Gaines, S.W.3d at 182-83; Hansen v. Horn Rapids O.R.V. Park of the City of Richland, 85 Wn. App. 424, 430 (1997).
11. Hansen, 85 Wn. App. At 430. 12. Smith v. Hansen, Hansen, & Johnson, Inc., 63 Wn. App. 355, 365 (1991). 13. Id. at 362; see also Hartman v. United Bank Card, Inc., No. C11–1753JLR, 2012
WL 4758052 (W.D. Wash. Oct. 4, 2012) (denying defendant’s motion for summary judgment regarding issue of apparent authority despite lack of direct communi-cations between principal and third party).
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with full knowledge of the facts: (1) receives, accepts, and retains benefits from the contract; (2) remains silent or fails to repudiate the contract; or (3) otherwise exhibits conduct demon-strating adoption and recognition of the contract.14
ii. Courts generally will apply these same agency contract law principles when evaluating authority to bind in the context of online agreements. For instance, a Massachusetts District Court held that there was no apparent agency as a matter of law where the only relevant conduct by defendant was that it issued the purported agent an e-mail address with the defendant’s corporate domain name.15 In denying the plaintiff’s claim of apparent agency in this context, the court cited opinions finding that giving someone a business card with the company name or logo, access to a company car, or company stationery, by them-selves, did not create sufficient indicia of apparent authority.16 Similarly, a Tenth Circuit Court refused to infer that a corpo-ration’s ownership of an IP address used in connection with an online purchase was sufficient to establish that the individual who agreed to the user agreement from that IP address had authority to bind the corporation.17 Finally, where a plaintiff company expressly notified both its employees and the defendant that only three executives were authorized to bind the plaintiff to an online agreement, the court held that unauthorized employees had no actual or apparent authority to bind the plaintiff when they used defendant’s website and agreed to defendant’s online agreements.18
c. Goods vs. Services laws i. Many cloud service contracts have evolved from a software
licensing model that in the past were governed by the Uniform Commercial Code (UCC) Article 2. While UCC obligations may be triggered by the delivery of software applications that are used to access the cloud services, generally the UCC doesn’t apply to a pure services contract. This can lead to questions concerning the enforceability of various exculpatory clauses,
14. Barnes v. Treece, 15 Wn. App. 437, 443 (1976). 15. CSX Transp., Inc. v. Recovery Express, Inc., 415 F. Supp. 2d 6 (D. Mass. 2006). 16. Id. 17. Health Grades, Inc. v. Decatur Memorial Hosp., 190 Fed. Appx. 586 (10th Cir. 2006). 18. National Auto Lenders, Inc. v. SysLOCATE, Inc., 433 Fed. Appx. 842, 843 (11th
Cir. 2011).
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since most case law concerning the interpretation of such clauses arises under the UCC rather than the common law.
ii. Using a traditional license grant clause in a cloud services contract may cause confusion, because it may grant a user rights in the underlying software used to provide the service (i.e., the cloud provider’s software infrastructure) rather than a right to obtain the services provided by the software. Therefore, many cloud service contracts are drafted in the form of a service contract rather than as a license. 1. Compare:
a. Provider hereby grants customer a non-exclusive right to use the software/services
b. Provider will use commercially reasonable efforts to provide access to the services set forth in Exhibit A.
d. Ownership of Custom Developments i. Shared Multi-Tenant – it is difficult for the vendor to convey IP
ownership of any service feature, because all customers must use the same service 1. This is the tradeoff for obtaining the efficiency of using a
cloud service model ii. Single Tenant - customer ownership of improvements is at least
possible, as the customer is able to use a personalized instance of the software
e. Pricing/Payment i. Many service providers will seek annual payment in advance
(may need to address refund issues for certain breaches and termination issues)
ii. Pay for use - How is “use” determined? 1. Actual use / number of users/ number of employees
iii. Price Changes 1. How frequently can the vendor change pricing? 2. Are there any limits on the amount that prices can increase?
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iv. Does the customer have any rights to obtain prices lower? (e.g., benchmarking right, and obligation on provider to match benchmark price)
v. MFN ? f. Services Description
i. A services description protects both the customer and the provider so that each party understands what services will be provided (and what services will not be provided)
ii. Common items that are included in the services description: technical specifications; published materials; FAQs; and, bug and technical reports
g. Service Evolution i. The contract should specify the process to changing the service ii. Can the customer refuse or delay a change?
1. Changes are often deployed simultaneously to all users in a shared multi-tenant architecture.
iii. What is the process for changing the platform, operating system or application?
iv. Notification? v. How does pricing work? vi. Is the data accessible by the customer for other purposes?
h. Service Levels i. How are service metrics defined? Does the entire service have
to be unavailable or only particular portions of the service? ii. How are service metrics reported?
1. Does the customer have to request reports or will the reports be automatically delivered?
2. Does the customer need to complain in order to receive the credit or is the credit applied automatically?
iii. Does the customer need to have access to any vendor tools? 1. Does the vendor have the necessary rights to allow cus-
tomers to use the tools?
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iv. Does the customer need to report a service issue to obtain a service credit or will a credit be automatically generated?
v. What is the process for strengthening service metrics over time?
vi. Are service credits the sole and exclusive remedy arising from a performance breach? 1. Frequently, vendors will provide service credits as the
sole and exclusive remedy for issues concerning the service. vii. Vendors often want to reserve the right to “immediately” suspend
the service in the event of an “emergency” issue. However, the standard for what constitutes an emergency may not be clearly defined other than an event that has or could have the potential of causing a material disruption in service or potential risk to data integrity.
viii. Service Levels Agreements typically have two components: 1. A service component - defines how the services will be
provided. Common SLA service components include: a. Identification of the services that are to be provided b. May identify the services that are not provided c. Identification of assumptions underlying service
availability d. Establishment of service standards (e.g., the
timeframes in which services will be provided) e. Definition of the responsibilities of both parties
2. A management component - defines the management pro-cedures for tracking the delivery and modification of the services. Common SLA management components include procedures for: a. Tracking the availability of the services b. Reporting service issues c. Resolving service issues d. Revising services or service metrics
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i. End User Conduct i. Cloud service provider contracts often require that customers
“ensure” that their end users comply with the vendor’s terms of service. Many sophisticated customers will attempt to soften this requirement. For example, a customer may only want to undertake an obligation to use “commercially reasonable efforts” to cause its users to comply with the terms of service, or simply “inform” its users of the obligations. Other customers may want the vendor to directly contract with the end users.
ii. Vendor terms of service typically prohibit the customer and its end users from engaging in inappropriate activities or using the services to store or process inappropriate content (which activities and content may, or may not be, identified in further detail).
iii. Vendor contracts may require the customer to notify the vendor in the event the customer terms of service are breached.
iv. Vendor contracts typically allow the vendor to suspend or terminate the customer or its users in the event the terms of service are breached, and require the customer to indemnify the vendor against any third party claims arising from the breach. Customers will often try to limit the suspension to: (1) material violations or violations that significantly threaten the security or integrity of the cloud service; and, (2) those end users that actually caused the breach (rather than the customer itself). Customers will also request advance notification of any suspension.
v. Cloud vendor agreements may incorporate by reference addi-tional terms and policies posted to the vendor’s website, such as policies addressing privacy practices and end user obligations concerning the use of the service, which are typically are subject to the vendor’s unilateral amendment. Customers will frequently attempt to require the vendor to provide direct notice in advance of the effective date of any amendments to incorporated terms, along with the right to terminate if such amendments are materially detrimental to the customer’s interests.
j. Termination and Transition i. Every contract will end at some time
1. It is important to plan for termination issues prior to contract execution
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ii. Contract should address 1. Duration of termination services 2. Payment for post-termination services 3. Transition assistance including data migration
a. Format of data? b. It may not be easy to copy or download the data
k. Disaster Recovery and Mitigation i. Does the service provider:
1. have a business continuity plan? 2. provide redundant operations from different sites? 3. routinely test its back-up capability? 4. routinely attempt to restore data?
ii. Contract may require the service provider: 1. to have a data/computing back-up plan 2. to routinely test its back-up capability 3. to store back-up on servers located at a separate location 4. to provide redundant operations from different sites 5. Consider the impact of bankruptcy on the ability to
access data and the ownership of back-up media iii. Disaster Recovery
1. What events cause the service provider to engage in data recovery operations?
2. Does the contract contain data recovery goals? 3. What are the consequences if the data is not recovered
within the specified time frames? 4. Who takes priority if multiple customers of the service
provider are affected? 5. How will a force majeure event impact contractual
obligations? l. “Force Majeure” Events
i. Parties can bargain for effects of “FME”
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ii. Consider scope and wording (what is/is not considered FME) iii. What form of relief is granted (excused from performance,
suspension of performance, termination, etc.)? iv. Does the FME clause override disaster recovery and service
level credits? v. What are the disaster recovery obligations during an FME?
1. Are some customers contractually prioritized? m. Data Protection Laws
i. Data protection and privacy laws should be considered when evaluating a cloud services offering. Different laws may be implicated depending on the nature of the content that is being stored or processed by vendor or the location where the data originates or is processed. Generally, cloud service providers will attempt to shift some or all of the compliance obligations to the end users, because the cloud service provider may be unaware of the actual content being processed or stored in its services. Depending on the circumstances, some of these laws may impose specific security requirements and, may require the imposition of various obligations on subcontractors. Some frequently implicated laws include: 1. Export Administration Regulations (EAR) / International
Traffic in Arms Regulations (ITAR) prohibit the unlicensed “export” of information to foreign nationals and to certain prohibited persons for national security reasons or protection of trade. These laws can be triggered if the employee of the provider has foreign nationals who can access the stored data.
2. Health Insurance Portability and Accountability Act (“HIPAA”) 42 U.S.C. § 1320a imposes various technical requirements on the storage of protected health information. a. Health Information Technology for Economic and
Clinical Health (HITECH) Act. Contains incentives related to development of health care information technology and adoption of electronic health record systems. This Act also widens the scope of privacy and security obligations imposed on service providers
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(including their subcontractors) that process or store information.
3. Family Educational Rights and Privacy Act (“FERPA”) 20 U.S.C. § 1232g; 34 CFR Part 99 protects the privacy of student education records. Many universities take the position that any education information, including student information databases and faculty and staff email con-stitutes “education records” for purposes of FERPA and therefore may be outsourced only to vendors that have been designated, and are willing to accept obligations associated with being a “school official” with “legitimate educational interests” in the data under FERPA.
4. Sarbanes-Oxley Pub. L. No. 107-204, 116 Stat. 745 (2002) (codified as amended in scattered sections of 11, 15, 18, 28 and 29 U.S.C.). imposes various controls over how financial information is stored, retained, altered and monitored.
5. Gramm-Leach-Bliley 15 U.S.C. §§ 6801 et. seq. addresses the treatment of personal data in banking and insurance industries.
6. Children’s Online Privacy Protection Act (COPPA) – 15 U.S.C. §§ 6501- 06. Address the collection and use of information from children.
7. Patchwork of evolving state laws. Many states impose data security requirements on entities operating in a state or who process data for its residents. For example, Massachusetts has enacted the “Massachusetts Standards for the Protection of Personal Information of Residents of the Commonwealth” that requires all individuals, corpo-rations, associations, partnerships and other legal entities (regardless of where they are located) that own, license, store or maintain personal information about a Massachu-setts resident to develop, implement, maintain and monitor a comprehensive, written information security program applicable to such information.
ii. EU Data Protection Act prohibits export of personally iden-tifiable information from EU to countries that have inferior (as viewed from an EU perspective) data protection laws.
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1. Rule: Data must not be transferred to countries outside the EU that do not offer an “adequate level of protection” a. Currently only: Andora, Argentina, Canada, Faroe
Islands, Guernsey, Isle of Man, Israel, Jersey, New Zealand, Switzerland, Uruguay
b. Exceptions: i. ask permission from every “data subject”
involved ii. US/EU Privacy Shield Adopted by European
Commission on July 12, 2016 (US Companies can certify compliance August 1, 2016)
iii. EU model contract clauses iv. “Binding Corporate Rules”
2. From a cloud perspective, EU data protection law will apply when a “controller” is located in its territory; or, when a “controller” outside the EU uses “equipment” within the EU territory. When applied to cloud computing, EU law can be triggered when using an EU-based data center. Many authorities interpret “equipment” in an extremely broad way (e.g., browser cookies).
iii. Sophisticated customers will often want to review a service provider’s internal security and control policies, audit security and control procedures and impose contractual obligations on the service provider to ensure that the service provider is in compliance and remains in compliance with the applicable laws. Many cloud service providers may have difficulty imposing contractual obligations on their subcontractors. For example, cloud service providers will often subcontract with very large data storage providers (such as Amazon) to provide underlying storage or computing resources.
iv. Note: Some vendors will attempt to minimize the impact of various laws by: (i) refusing to comply with laws that are triggered by specific content; (ii) providing each customer with encryption tools that do not allow the vendor to access the customer data; and (iii) requiring the customer to warrant that it is legally permitted to have the vendor process the information provided by the customer.
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n. Data Issues- i. It is important to
1. define “data” (e.g., does the definition cover only infor-mation that is stored by customer, or does it including information that is created or collected by the cloud service provider in the course of providing the services)
2. specify ownership rights in the data 3. specify purposes for which the data may be used 4. identify the obligations of the parties to comply with data
and privacy laws ii. Will the vendor be permitted to use the data (or subsets of the
data) for other purposes? o. Subcontracting
i. Does the service provider use subcontractors? ii. Can the service provider impose contractual obligations on the
subcontractors? iii. Does the customer have a right to approve new subcontractors?
(or a category of subcontractors, such as those that have access to that data in either encrypted or unencrypted form?)
iv. What does the approval/disapproval process look like? v. Should the customer have a subcontractor termination right
rather than an approval right? p. Data Center Issues
i. Location - Some cloud provider contracts expressly reserve the right to store customer data in any country in which the provider does business. While dispersed geographical storage may be beneficial from a data back-up perspective, it can raise security issues.
ii. What are the characteristics of the data center? 1. Security? 2. Redundant telecommunications, power, and cooling?
iii. How is data backed-up? On-site? Off-site? How is off-site data protected?
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iv. Where is the data stored? v. Is the data and back-up data encrypted?
q. Security i. Cloud service providers may offer to provide “commercially
reasonable” security for data. In some instances, contracts may also offer to adhere to “industry standard” security practices, without specifying the specific standard. For some customers, it may be beneficial to specify an actual, specific security requirement (e.g., data subject to HIPAA, Gramm-Leach-Bliley, PCI DSS, or the Massachusetts Standards for the Protection of Personal Information of Residents of the Commonwealth) or industry standard (e.g., ISO 27001) that must be followed.
ii. Customers may want to consider the following factors when evaluating the cloud provider’s security: 1. What physical security measures does the vendor use to
protect the underlying data centers? Can third parties access the data centers?
2. Is the customer data encrypted in transit and at rest? 3. Does the provider hold the decryption keys or are the
keys held only by the customer? If the provider holds the keys, how are the keys protected?
4. Will foreign nationals be able to access the data or decryption keys? If so, this may create export control issues.
5. Who has access to: facilities, infrastructure, platforms, applications, and data?
6. Does the cloud service provider perform background checks on employees who have access to encrypted or unencrypted customer data?
7. Will dedicated equipment, shared equipment or some combination be used to store or process the data?
8. Does the vendor use access controls to prevent unau-thorized access to facilities and stored data?
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9. Does the vendor regularly perform security audits and penetration testing? Is the vendor under a contractual obligation to take any action if the security audit reveals a deficiency?
r. Security Events i. In more complex agreements, it may be import to distinguish
between an actual security breach (“Security Incidents”) and a vulnerability (“Security Issues”) and provide different rights, obligations and remedies for each category of issues. 1. Security Issues – are issues with the system that could
give rise to a security breach a. How are security issues defined? b. objective vs. subjective definition c. Are issues in the vendor’s control and those in the
control of its subcontractors differentiated? d. Does every problem need to be investigated? e. Does every problem need to be fixed? f. What is the process for fixing the issue? g. Is there a specified time frame? h. How is the time frame adjusted for fixes that take
longer to implement? 2. Security Incidents – are breaches of security
a. Notice requirement to other party or to end users? b. Remediation efforts? c. Who does what? d. Who pays for remediation efforts? e. Does the breach require end-user notification? f. Who has legal liability for the incident? g. May want to address liability caused by third parties
(e.g., hackers) s. Confidentiality Clauses
i. May impose a back door security obligation on the service provider
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ii. Is the service provider obligated to keep a customer’s infor-mation “confidential”?
iii. Some providers will state that they will employ “commercially reasonable efforts” to “protect” a customer’s confidential information
t. Subpoenas/E-Discovery i. Customers and vendors of cloud services can be compelled to
produce data under several mechanisms. It is important to note that in some circumstances, certain categories of vendors are not allowed to voluntarily disclose information to the government. 1. Warrants and Subpoenas
a. U.S. Law - Fourth Amendment - “The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and sei-zures, shall not be violated, and no warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons of things to be searched.”
2. Electronic Communications Privacy Act (ECPA) a. The Wiretap Act b. Stored Communications Act c. The Pen register/Trap & Trace Act
3. Patriot Act (including National Security letters and FISA Warrants)
ii. Typically vendors will: 1. Try to shift costs and obligations of responding to the
client 2. Expressly reserve the right to disclose information as
required by law u. Data Retention
i. Customers may want two conflicting obligations: 1. Vendor should keep the data as long as customer needs it
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2. Vendor should promptly destroy it when it is no longer needed
ii. Depending on the service, vendor may not know the content of the data and will be unable to assess legal retention requirements
iii. Contract should specify when data is destroyed v. Compliance Requirements
i. Customer may want the contract to contain procedures for auditing compliance issues: 1. Does the vendor data center facility allow visitors? 2. Will the audit disclose too much security information? 3. Will a customer’s auditor have access to other customers’
data? ii. Customer may want to impose compliance obligations on the
vendor w. Risk Mitigation
i. Typically, the customer wants to impose a combination of the following obligations on the service provider: 1. Operating procedures 2. Warranties 3. Indemnities
a. Provider contracts rarely include any form of indem-nification, but customers frequently ask for such protections in connection with third party intellectual property infringement and inappropriate disclosure or data breach. If the provider provides an indemnity, such obligation will typically cover: i. Defense and payment finally awarded judgment ii. It will want to exclude combinations created
by the customer and data issues arising from the specific data content
4. Software Escrows a. Typically, software escrows have little value in many
cloud service arrangements, because the customer
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will not have the equipment/data center infrastructure to actually utilize the escrow
5. Service Escrows: Situation may be different if service is an “app” running on commercial third party platform
6. Data Escrows? a. Data stored with a third party that can be accessed
separately by customer 7. Insurance
a. Contract may require a party to carry certain levels of insurance
b. CGL policy may not be enough to cover many cyber liability issues
c. Cyber liability policy may have lower limits for certain categories of damages (e.g., breach notifi-cation, credit reporting services)
d. Requires consultation with broker/agent x. Warranty Disclaimers
i. In some jurisdictions, warranty disclaimers must be explicitly negotiated or bargained for.19 It is unclear what constitutes adequate negotiation in the commercial context. Cases frequently note that the parties did not discuss the disclaimer term— suggesting a high bar for negotiation—but involve distinguish-able factual scenarios where the disclaimer was first presented in a post-sale invoice.20 Consumer cases applying the nego-tiation rule vary; some suggest that knowledge and under-standing of the term is sufficient, while others insist that actual
19. W. Rec. Vehicles, Inc. v. Swift Adhesives, Inc., 23 F.3d 1547, 1554 (9th Cir. 1994)
(applying Washington law). Note: a second requirement—that the provision state with particularity the qualities being disclaimed—does not apply in commercial trans-actions, because the statute requires particularity only for consumer transactions. Wash. Rev. Code § 62A.2-316(4); Hartwig Farms, Inc. v. Pac. Gamble Robinson Co., 28 Wn. App. 539, 542, n.5 (1981); United Van Lines, 710 F. Supp. at 286.
20. See W. Rec. Vehicles, 23 F.3d at 1554; Hartwig Farms, 28 Wn. App. at 543 (1981); Rottinghaus, 35 Wn. App. at 103; Riverview Sch. Dist. No. 407 v. Loadmaster Sys., Inc., 113 Wn. App. 1023, at *3 (2002) (unpublished opinion).
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knowledge of the term is not sufficient if the negotiation does not address the terms of the disclaimer and possible defects.21
ii. Other jurisdictions allow a seller to disclaim warranties.22 For example, in Texas, to exclude the implied warranty of mer-chantability, the contract “must mention merchantability and in case of a writing must be conspicuous[.]”23 In Colorado, implied warranties may be excluded “by a conspicuous writing which states generally that there are no warranties extending beyond the description in the contract.”24
iii. To be conspicuous, a warranty exclusion must reasonably give notice to the person against whom it will operate.25 For example, Texas courts determining conspicuousness consider capitalization, prominent placement,26 setoff from surrounding text, and larger or contrasting type or font.27 Courts are more likely to find a disclaimer conspicuous when the transaction is between commercial entities.28
y. Limitation of Liability i. Three Categories of Damages
1. Direct damages (basic measure of damages) a. Difference between what was promised and what
was delivered – service providers will often want to limit their damages to direct damages
21. Compare Newkirk v. McMullen, 123 Wn. App. 1046, at *3 (2004) (unpublished
opinion) and Miller v. Badgley, 51 Wn. App. 285, 293-94 (1988). In any event, signing a document that contains the term is not necessarily sufficient. See Babb v. Regal Marine Indus., Inc., No. 43934-4-II, 2014 WL 690154 (Wash. App. Div. 2, Feb. 20, 2014) (not published) (disclaimer held invalid, because although consumer signed contract, he did not sign on line next to disclaimer provision).
22. Tex. Bus. & Com. Code § 2.316(b). 23. Id. 24. O’Neill v. Int’l Harvester Co., 575 P.2d 862, 865 (Colo. Ct. App. 1978); see also
Colo. Rev. Stat. § 4-2-316(2). 25. Arkwright-Boston Manufacturers Mut. Ins. Co. v. Westinghouse Elec. Corp., 844
F.2d 1174, 1183 (applying Texas law and citation omitted). 26. See id. at 1183-85. 27. Omni USA, Inc. v Parker-Hannifin Corp., 964 F. Supp. 2d 805, 815 (S.D. Tex.
2013) (applying Texas law). 28. See id.
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2. Incidental damages a. Costs directly associated with obtaining replacement
goods or services 3. Consequential damages
a. Lost profits b. Unauthorized disclosure of data will often result in
consequential damages (and direct damages too) 4. Issues to consider:
a. Caps on the “type” of damages b. Direct vs. Consequential vs. Incidental c. Caps on the “amount” of damages d. Exceptions to the one or both of the caps?
i. Indemnification ii. Security Breach
z. Exclusionary Clauses i. The enforceability of exclusionary clauses (which include both
remedy limitations and disclaimers of liability) can vary widely from jurisdiction to jurisdiction.29 In most jurisdictions, they are largely enforceable under unless unconscionable. For example, under Washington law, “Exclusionary clauses in purely commercial transactions ... are prima facie conscionable and the burden of establishing unconscionability is on the party attacking it.”30 When the party seeking to avoid the limitation argues that it should be not be enforced, the court first consid-ers where there are any “indicia of unfair surprise.” That is, was the buyer advised of the limitation term, was the contract short and clear, and was this an arm’s length transaction among competent parties. Compare this to Colorado, which also allows
29. The specific factors and procedure varies widely, based on jurisdiction. Compare,
Lincoln General Ins. Co. v. Bailey, 224 P.3d 336, 341 (Colo. App. 2009) (citing Davis v. M.L.G. Corp., 712 P.2d 985, 991 (Colo.1986); Delfingen U.S.-Tex., L.P. v. Valenzuela, 407 S.W.3d 791, 797-98 (Tex.App. 2013); Zuver v. Airtouch Com-munications, Inc., 153 Wn. 2d 293, 304 (2004); NEC Techs., Inc. v. Nelson, 478 S.E.2d 769, 771 (Ga. 1996); American Nursery Products, Inc. v. Indian Wells Orchards, 797 P.2d 477 (Wn. 1990).
30. Am. Nursery Prods., 115 Wn. 2d at 222.
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general disclaimers of tort liability for the manufacture and sale of products.31 But, it disfavors such disclaimers, however, and requires that they be “specifically agreed to in negotiations between a commercial seller and commercial buyer.”32
ii. Courts may sometime not enforce limits on remedies if the only available remedy fails of its essential purpose. The doctrine is driven generally by concern that contracts should provide at least a fair quantum of remedy for breach of the contract. Many jurisdictions apply two-part test: (1) identify essential purpose of limited remedy; and, (2) identify whether or not limited remedy in fact failed to meet such essential purpose
iii. Cases are mixed as to whether the failure of Essential Purpose Doctrine applies to pure services agreements. 1. Cases declining to apply failure of essential purposes
doctrine in a services context a. Pichey v. Ameritech Interactive Media Services,
Inc., 421 F. Supp. 2d 1038 (W.D. Mich. 2006) (“Under Michigan law, the failure-of-the-essential- purpose doctrine applies only to matters falling under Article 2 of the Uniform Commercial Code (“UCC”), Article 2 of the UCC, however, applies only to transactions in goods, not transactions for services. … [T]he doctrine of unconscionability more properly provides the vehicle for determining whether the terms of a services contract are sufficiently one-sided as to undermine the purpose of the agreement.”)
b. Wells v. 10-X Manufacturing Company, 609 F.2d 248 (6th Cir. 1979). (“Article 2 of the Code is intended to have broad application. However, it also follows from the Code’s continued focus on ‘goods,’ the definition of which is cast in terms of a ‘contract for sale,’ that a contract which calls merely for the rendition of services is not subject to the sales provisions of the Code.”)
31. United States Aviation Underwriters, Inc. v. Pilatus Bus. Aircraft, Ltd., 358 F.
Supp. 2d 1021, 1024 (D. Colo. 2005) (applying Colorado law); accord Lease Finance, Inc. v. Burger, 572 P.2d 857, 861 (Colo. Ct. App. 1978).
32. United States Aviation Underwriters, 358 F. Supp. 2d at 1024 (citation omitted).
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c. San Francisco Bay Area Rapid Transit v. GE Trans-portation Systems Global Signaling, LLC, 2010 WL 2179769 (N.D. Cal. 2010). (“There simply is no parallel provision in the common law as applied to services contracts and although ‘courts are free to reason by analogy to [the U.C.C.],’ the only other court addressing this particular issue has held that the U.C.C. cases do not apply directly to the limi-tation of liabilities clauses of a services contract.”)
2. Cases that apply the failure of essential purpose doctrine to a services agreement a. Jacada (Europe), Ltd. v. International Marketing
Strategies, Inc., 2004 WL 24267645 (W.D. Mich. 2003) (Court upheld the arbitration award, reasoning that, “the case law does not strictly limit the appli-cation of ‘the failure of an essential purpose’ to cases involving the sale of goods.”)
b. NetworkTwo Communications Group, Inc. v. Spring Valley Marketing Group and CommunityISP, Inc., 2003 WL 1119763 (E.D. Mich. 2003) (Court upheld its earlier ruling that “the damage limitation provi-sions [of the agreement did] not fail of their essen-tial purpose and render the damages . . . illusory” in connection with an internet services contract)
c. Adcock v. Ramtreat Metal Technology, Inc., 105 Wash. Ct. App. 1058 (2001).
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