Technology Transfers: Do They Transfer Goods or Services?
| Publication year | 1996 |
| Pages | 13 |
| Citation | Vol. 25 No. 1 Pg. 13 |
1996, January, Pg. 13. Technology Transfers: Do They Transfer Goods or Services?
The term "technology transfer" can be interpreted in many ways. It may mean the sale or lease of a custom or semicustom computer software package, or an entire system comprised of hardware, software and ongoing system support. Whatever the transfer entails, its classification as a good or a service will determine the outcome of many contract disputes that may arise between the parties to the transfer.
In most states, courts apply the Uniform Commercial Code ("UCC") to contrads for the sale or lease of goods.(fn1) When the contract is one for services, courts will apply common law and other statutes to the contract. Therefore, how a court characterizes the transfer will determine the applicable law and, ultimately, the risk allocated between the parties.
Technology transfers that involve substantial time and effort in development of the technology and ongoing system support encompass elements of both a transfer of goods and a transfer of services. In cases of this nature, courts-even using the same standard-have arrived at Werent conclusions regarding the nature of the transfer.
Unanticipated application of the UCC to a contract transferring technology may dramatically impact the parties' rights under the contract. For example, where custom-designed sohare does not exactly meet the expectations of the purchaser nor the promises of the developer, implied warranties under the UCC will hold the developer to a standard of performance far greater than he or she may have anticipated.(fn2) To avoid that kind of surprise, transfer contracts should be crafted with an eye toward recent court interpretations of similar contracts.
This article contains a description of the standard used by Colorado courts to determine whether a transfer is one for goods or services. Also included are discussions of a few of the more recent court decisions from various states that employ the same test as Colorado and involve transfers of the type that require some technological development and ongoing technical support.
Where a contract involves elements of both goods and services, Colorado courts apply the "primary purpose" test(fn3):
The test. . . is not whether...
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