Tough time dealing with intangibles

The International Institute for the Unification of Private Law (Unidroit) is trying to come up with a model international law covering leasing. Sounds like a straightforward activity (if anything concerning international law can be considered straightforward). However, the activity has highlighted an interesting problem — how tough it is to deal with intangibles.
The summary of the 2007 meeting makes clear the intangibles, such as intellectual property and software are not included in the definition of an asset:

First, it was agreed that, because intellectual property was more commonly licensed than leased and because leases of intellectual property involved unique issues, it would not be appropriate for the preliminary draft model law to make any specific mention of intellectual property.

In part, this is due to the problem of how to treat software:

One State also noted that the model law does not specifically mention whether it covers leases of software, which are of growing importance. This is consistent with other international instruments, such as the Vienna Convention on Contracts for the International Sale of Goods (“CISG”). By not mentioning software explicitly, the model law recognizes that sometimes, software is an “asset” like other physical assets. But sometimes, software is much more like a “service,” designed and maintained for a particular user. Just as under the Vienna Convention, courts applying the model law will decide on a case-by-case basis whether particular software qualifies as an “asset” or a “service.”

In other words, international law is still trying to figure out the difference between an off-the-shelf software programs (like Microsoft Word) and a customized software program (such as the design of my website). One is an intangible good; the other is an intangible service.
In all fairness, this can be a tough question: is the design of this blog an asset or a service? I used the standard Movable Type software, but customized the details.
The underlying problem is that the Convention on Contracts for the International Sale of Goods excludes services from its coverage. Declare software an “asset”, then it is covered; declare it a service, then it is not. As the states Wikipedia entry states:

With some limited exceptions, the CISG does not apply to domestic goods, nor does it apply to auctions, ships, aircraft or intangibles and services.] The position of computer software is ‘controversial’ and will depend upon various conditions and situations.

The situation is nothing new. Over a decade ago, Karen Giannuzzi pointed out the problem with this approach in an article
The Convention on Contracts for the International Sale of Goods: Temporarily out of ‘Service’?:

It is surprising that in the present global economy, this monumental international convention applies only to “contracts for the sale of goods” and, by its own terms, fails to account for the ever-increasing role of service industries and service-related contracts. As a result, the CISG is an inadequate medium for the constantly changing international legal environment and therefore only has limited utility with respect to international transactions.
International transactions are no longer limited to those involving the sale of goods. Rapid advances in technology, communication services, and information systems allow multi-national companies to extend their businesses throughout the world, globalizing regional economies and changing the manner in which business is conducted. In the international context, simple contracts for the sale of goods are now mired with service-oriented provisions as issues concerning the licensing of technology and know-how, various distribution, agency and franchise requirements and restrictions, sales performances, and the transfer of trademarks and trade secrets create a more complex and intricate relationship between what has been traditionally known as the “buyer” and the “seller.” Services are becoming an increasingly important part of international transactions, and contracts are no longer clearly categorized into separate groups either as “contracts for the sale of goods” or “contracts for the performance of services. “
The international business community needs a predictable structure to govern legal issues–regardless of whether a contract is for the sale of goods or for the provision of services.

Just one more example of how we let increasingly artificial definitions of service versus good get in the way.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s