"COMPUTER MALPRACTICE" AND OTHER LEGAL PROBLEMS POSED BY COMPUTER "VAPORWARE"

by Ronald N. Weikers, Esq.

I. INTRODUCTION

The computer hardware [FN1] and software [FN2] trade is extremely complicated in that manufacturers, distributors and retailers must contend with thousands of available computer systems and parts, various financing and pricing concerns, training and retaining salespeople and much more. [FN3] Nonetheless, the picture has recently become further clouded by a growing number of lawsuits brought by dissatisfied purchasers against computer vendors. [FN4]

Consumers generally know less about computers than they know about most other products. [FN5] Consequently, they expect computer salespeople to have precise knowledge of both the industry in general and the particular equipment they sell. [FN6] Consumers tend to rely more heavily on statements, literature and other representations about computers than they rely on representations about lower technology-products. [FN7] Over a period of time, a computer customer may become dependent upon and place his confidence and trust in the computer seller. [FN8] Consequently, a relationship may develop in which the seller makes promises to the buyer, but fulfills less than all of them. [FN9]

This relationship provides an opportunity for the seller to place 'vaporware' with an unsuspecting consumer. Vaporware is a computer product which, unknown to the purchaser, has not yet been created or perfected. [FN10] The sale of vaporware is not an uncommon occurrence; some high technology companies depend upon sales revenues from unperfected products to help pay for additional research and development. [FN11] Such transactions inevitably promote dissatisfaction among purchasers and provide the basis for lawsuits for breach of contract, breach of warranty, failure of a warranty's essential purpose and more. These contract theories are pleaded along with tort theories such as fraud, intentional or negligent misrepresentation and product liability. [FN12] Additionally, courts have considered, but have uniformly rejected, a new cause of action entitled 'computer malpractice,' [FN13] which would eliminate reliance by courts on nebulous negligence standards. [FN14]

Computer liability cases are often factually complicated by standard form contracts which limit remedies, provide warranty disclaimers and invalidate prior representations. Recovery is further hindered by nonquantifiable damages. [FN15] In addition, courts often misconstrue the facts or the law, or both, and determine damages in an inconsistent manner. [FN16] Furthermore, courts have not definitively resolved whether a contract for the purchase of computer software is a contract for 'goods' or for 'services.' [FN17]

The multiplicity and complexity of legal issues raised by computers and their essential technology reflect computers' uniquely pervasive impact on society. However, the enormous legal impact of the computer is disproportionate to the computer's young age. Because the computer industry is emerging from its infancy and will undoubtedly play an even larger role in the world economy of the future, the judiciary may find it useful to establish practical and flexible standards for applying tort and contract law to vaporware cases.

Despite periods of recession in other areas of the economy, the demand for computers an related products in the United States has risen at a steady and rapid rate since 1978. [FN18] Consequently the computer industry has created some of the world's largest and most profitable corporations. [FN19] The industry is therefore ever expanding, with new companies seeking to lure customers away from other established corporations by introducing and marketing their 'latest technology' products. [FN20] However, these latest technology products often are not delivered on time to purchasers due to technological or economic obstacles. [FN21] Moreover, while significantly more products are delivered on schedule, they often fail to meet purchasers' expectations due to either the puffery of the salesperson or the purchasers' overly optimistic expectations.

II. BACKGROUND

The United States Court of Appeals for the Fifth Circuit decided one of the earliest vaporware cases in Sperry Rand Corp. v. Industrial Supply Corp. [FN22] In Industrial Supply, a pre-Uniform Commercial Code case, an industrial hardware distributor purchased a custom designed punchcard computer system from Sperry, who represented the system as more economical, faster and more efficient than the distributor's previous computer system. [FN23] The sales contract provided a thirty-day warranty for adjustments by Sperry and a ninety- day warranty for defective parts. It also included a merger clause which excluded all prior representations by Sperry about the system. [FN24]

After several months, Industrial Supply expressed to Sperry its dissatisfaction with the computer system, repudiated the contract and sought a refund of the system's purchase price. [FN25] Sperry refused, suggesting that Industrial Supply's dissatisfaction was due to its own unwillingness to properly accommodate the system. [FN26] Industrial Supply sued, claiming breach of express and implied warranties as well as fraud, and sought rescission of the contract. [FN27] Sperry defended by sating that the system was delivered as warranted, and tat any other representations were merely opinions which had no legal impact upon the sale or were, in any event, excluded from the sales agreement by the contract's merger clause. [FN28]

The Fifth Circuit found in favor of Industrial Supply, holding that Sperry had breached the implied warranty of fitness for a particular purpose. [FN29] The court recognized Industrial Supply's inexperience with computer systems, and overlooked its common law duty to inspect. [FN30] The court further held that neither the contract's merger clause nor the parol evidence rule excluded the implied warranty of fitness. [FN31]

In United States v. Wegematic Corp., [FN32] another early vaporware case, the Federal Reserve Board (the Board) agreed to purchase Wegematic's latest technology computer system. [FN33] The purchase order specified a delivery date, liquidated damages and Wegematic's responsibility for excess costs incurred by the Board in the event Wegematic failed to comply with any provision of the agreement. [FN34] Subsequently, delivery of the advanced computer system proved to be impossible due to 'basic engineering difficulties.' [FN35]

Wegematic notified the Board that it would not deliver the system. The Board exercised its right under the contract to replace the computer by purchasing a similar system at a higher price. [FN36] The Board brought a breach of contract suit for the difference in price and liquidated damages. Wegematic defended by arguing that it required an additional two years and $1.5 million in order to correct the engineering problem. Therefore, Wegematic contended, the 'practical impossibility' of competing the contract excused its default. [FN37]

The United States Court of Appeals for the Second Circuit decided in favor of the Board, holding that a manufacturer who represents his product as a 'revolutionary breakthrough' impliedly assumes the risk of damages arising out of his breach. [FN38] The court further reasoned that to hold otherwise would permit an entrepreneurial developer 'a wide degree of latitude with respect to performance while holding an option to compel the buyer to pay if the gamble should pan out.' [FN39]

In these early vaporware cases the courts empathized with the naiveté of purchasers of high technology products and found in their favor. [FN40] These decisions occurred in a commercial environment where parties are generally presumed to deal at arm's length and to owe no duties to each other except those that may be found within the four corners of the contract. [FN41]

Although these vaporware cases have served as precedent for subsequent lawsuits involving the sale of nonexistent or unperfected computer products, [FN42] many courts have been less compassionate to plaintiffs' claims. Courts have often ignored the unique context of cases involving computers when applying traditional legal principles and have mechanistically applied the law to such cases. This Comment will explore those other areas of the law which are apposite to vaporware cases, and will suggest a general framework for resolving legal issues which arise from the sale of defective computer systems.

III. ANALYSIS

Vaporware cases commonly involve general contract principles, [FN43] Uniform Commercial Code (U.C.C.) issues, [FN44] damages, [FN45] and fraud and misrepresentation claims. [FN46] Additionally, 'computer malpractice', a proposed cause of action which has not yet been recognized by any court, may soon become a valuable tool for resolving problems which arise from the sale of defective computer systems. [FN47]

A. General Contract Principles

Vaporware cases often involve a 'turn-key' computer system, that is, a custom designed software and hardware system sold as a package which is ready to perform a specialized function immediately upon delivery to the purchaser. [FN48] Purveyors of turn-key systems are often referred to as systems houses. [FN49] Most systems houses provide custom software to meet the specifications of their clients. [FN50] In the typical computer contract case, the plaintiff is a small business which purchases a turn-key system under a written agreement from a larger systems house. [FN51]

In a turn-key sales contract, the purchaser will typically attempt to define in advance the software's structure and the hardware's specifications. However, the system's final form can usually be determined only after the contract has been signed and the seller has had an opportunity to determine whether its programming abilities can satisfy the purchaser's needs. Consequently, this conflict creates a 'catch-22' situation for turn-key system purchasers. [FN52]

Contracts for turn-key systems often necessitate the services of independent programmers and consultants. [FN53] In such cases, the systems house will attempt to contract with the purchaser for a finished product that conforms to the user's specifications. [FN54] The user, on the other hand, will attempt to contract for a completely 'bug free' system. [FN55] This tension generally results in contractual vagueness, a common feature of development and consulting contracts. [F56] The contract will vaguely state the expected nature of the finished product and the estimated man-hours necessary to complete the product. [FN57]

Three provisions are commonly found in standardized computer equipment sales contracts: 1) the manufacturer's warranty against defects in material and workmanship for some period of time; 2) the manufacturer's disclaimer of all other warranties, express and implied, including, but not limited to, the implied warranties of merchantability and fitness for a particular purpose; and 3) a merger clause which provides that the written agreement constitutes the entire agreement between the purchaser and purveyor, and that the written agreement supersedes all prior communications between the parties, including all oral and written proposals. [FN58] However, these contractual limitations of liability are generally not effective against claims for negligence [FN59] or fraud.

The standardized contract is an important mechanism for allocating risk. [FN60] If a risk cannot be identified and assessed in advance, the use of a limitation of liability provision in a standardized contract provides a convenient means of allocating such contingent risk in advance. [FN61] The effect of these standard computer contracts provisions under traditional contract principles is distinctive in several respects and is discussed below.

1. Parol Evidence Rule

Courts have in some vaporware cases given full effect to contractual merger clauses and as a result have precluded plaintiffs' claims. For example, in Office Supply Co. v. Basic/Four Corp., [FN62] the United States District Court for the Eastern District of Wisconsin held that a computer sales contract which specifically provides that it constitutes the entire agreement and understanding between the parties through an integration clause prevents consideration of parol evidence to vary the terms of the agreement. [FN63] The plaintiff was, therefore, precluded from sung under a breach of contract or warranty theory. [FN64]

The Arizona Court of Appeals applied the same contractual principle to fraud and misrepresentation claims in Kalil Bottling Co. v. Burroughs Corp. [FN65] In Kalil the court held that, because the contract specifically excluded the alleged misrepresentations, Kalil's claims for negligent misrepresentation, fraud and consumer fraud could not be proved by extrinsic evidence under the parol evidence rule. [FN66]

In contrast, the United States District Court for the District of Nevada held in Sierra Diesel Injection Service v. Burroughs Corp., [FN67] that the parol evidence rule does not exclude evidence of fraud in the inducement of a contract, even where the court finds that there is an integrated agreement. [FN68] Rather, the court held that parol evidence may always be used to show fraud in the inducement of the contract, even if there has been a valid integration, because fraud in the inducement invalidates the entire contract. [FN69]

Although the plaintiffs in Office Supply, Kalil and Sierra were each commercial entities that purchased similar computer systems, the courts interpreted the relationship between the parol evidence rule and merger clauses differently. It is submitted that Office Supply and Sierra offer better reasoned holdings. As the court in Office Supply held, a contract should be capable of precluding certain causes of action. [FN70] However, as the Sierra court intimated, a cause of action for fraud or misrepresentation attacks the validity of the contract as a whole. Precluding such claims based on the parol evidence rule would beg the question whether an enforceable contract existed at all. [FN71]

2. Lease Agreements and Contractual Rights and Duties

Although the U.C.C. did not recognize leases until recently, [FN72] courts have historically applied sales contract principles to computer leases. For example, in Neilson Business Equipment Center, Inc. v. Monteleone, [FN73] the Delaware Supreme Court held that, although computer agreements are often structured as leases, the substance of such transactions are properly characterized as sales. [FN74] Additionally, in Office Supply, [FN75] the United States District Court for the Eastern District of Wisconsin held that a sale of software which is in lease form for reasons related to copyright protection is nonetheless a 'sale' for purposes of the U.C.C. [FN76]

Finally, in Earman Oil Co. v. Burroughs Corp., [FN77] the United States Court of Appeals for the Fifth Circuit held that because a three-party lease transaction was a financing arrangement, the real economic effect of the transaction was a sale directly from Burroughs to Earman under the 'contemporaneous transaction' principle. [FN78] Under this doctrine, where a purchase agreement and a financing agreement 'are executed by the same parties at or near the same time in the course of the same transaction and concern the same subject matter they will be read and construed together,' even though the separate documents may have been executed days or weeks apart. [FN79]

A computer lease may, therefore, be legally similar to a computer purchase insofar as the same rights and duties may arise under both transactions. The United States Court of Appeals for the Eighth Circuit applied this analogy in Hunter v. Texas Instruments, Inc. [FN80] In Hunter, the court held that a manufacturer's liability for breach of warranty may be limited o excluded in a distributor's lease even tough the manufacturer is not a party to the contract. [FN81] Thus, a party to computer lease agreement cannot claim that its terms are per se invalid.

3. The Relationship Between Express Warranties and Warranty Exclusions

In some instances, warranties which are expressly included in a written sales contract are excluded by other contractual provisions. For example, a vendor may contractually exclude implied warranties of merchantability and fitness for a particular purpose, and in the same writing warrant against defects in material and workmanship. The legal result of this contradiction is unclear, giving rise to several possible consequences.

Perhaps these provisions directly conflict and, therefore, vitiate each other. Alternatively, each provision may pertain to unrelated characteristics of the product. Finally, perhaps a product must be free of defects in material and workmanship in order to be merchantable. The following cases illustrate the current relationship between express warranties and warranty exclusions.

In Nixdorf Computer, Inc. v. Jet Forwarding, Inc., [FN82] the United States Court of Appeals for the Ninth Circuit applied the fundamental principle that if uncertainty exists about the meaning of contractual provisions, the language of the contract is to be construed most strongly against the drafter of the ambiguous term. [FN83] Moreover, in W.R. Weaver v. Burroughs Corp., [FN84] the Texas Court of Appeals held that any ambiguity arising from the combined effect of an express warranty and a warranty exclusion will be resolved in favor of the express warranty. [FN85]

This principle was later applied to a computer vaporware case in Consolidated Data Terminals v. Applied Digital Data Systems, Inc. [FN86] In Consolidated Data, the United States Court of Appeals for the Ninth Circuit conclude that a general liability contractual disclaimer did not override the highly particularized warranty created by specifications. [FN87] Thus, if a contract includes both specific warranty language and a general disclaimer of warranties and the two cannot be reasonably reconciled, the specific warranty prevails over the general disclaimer and properly forms the basis for a breach of warranty action. [FN88]

This principle was invoked by the Office Supply court, [FN89] which extended coverage to software under an express warranty that covered hardware, but did not expressly cover software. [FN90] The court thereby expanded the terms of the express warranty and constricted the scope of the warranty exclusion to allow warranty coverage which had not been bargained for by the parties. [FN91]

Based on these cases it appears that when express warranties and warranty exclusions conflict, courts will nullify the warranty exclusions and apply the express warranty. Alternatively, courts will include associated products under the terms of the express warranty and preclude application of the warranty disclaimer to them.

4. Application of Express Warranties and Conditions

Although courts liberally interpret express warranties when they conflict with contractual warranty disclaimers, [FN92] they apply them quite literally when express warranties and conditions stand alone. For example, in RRX Industries, Inc. v. Lab-Con, Inc., [FN93] the United States Court of Appeals for the Ninth Circuit held that, despite efforts by a computer vendor to 'timely install an operational software system, to repair malfunctions, and to train RRX employees,’ [FN94] the vendor nonetheless breached its duties because the software did not function properly. [FN95] The court interpreted this failure as a reflection of the vendor’s concurrent failure to adequately correct programming errors and to provide the purchaser’s employees with sufficient training. [FN96]

In Honeywell Information Systems, Inc. v. Demographic Systems, Inc., [FN97] the United States District Court for the Southern District of New York interpreted the payment terms of a computer sales agreement so literally that it found that the purchaser’s payment was not conditioned upon performance by the vendor. [FN98] The court stated: "[E]ven taking defendant’s allegations of poor equipment performance as true, defendant fails to state a valid defense to a replevin claim where, as here, performance was not a condition of payment under the Agreements." [FN99]

It is submitted that courts will interpret uncontradicted contractual provisions in a very literal manner. Perhaps this is an attempt to construe ambiguous form contracts in a consistent manner. However, literal interpretation of computer purchase agreements can sometimes have an unfair and disastrous effect upon the purchaser.

B. Computer Contracts Under the U.C.C.

Courts usually apply Article 2 of the U.C.C. to computer transactions which involve hardware. [FN100] In the process of determining whether the U.C.C. applies, however, courts have become involved in a lengthy analysis to determine whether software and hardware systems constitute "goods." Once it has been determined that they are goods and, therefore, the U.C.C. applies, courts have looked at the issues of conspicuousness of warranty exclusions, limitations of damages and remedies, implied warranties of merchantability and fitness for a particular purpose, failure of a warranty’s essential purpose, unconscionability and other U.C.C. principles.

1. Software Constitutes a "Good"

The U.C.C., Article 2, applies exclusively to "transactions in goods." [FN101] "Goods," as defined by the U.C.C., are "all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale...." [FN102] Arguably, turn-key software may be a specially manufactured good; [FN103] however, it is unclear whether software is "movable." [FN104] Furthermore, the phrase "time of identification" is particularly ambiguous in the context of custom designed software, for such software is often delivered before it is completely "debugged." [FN105]

However, identification can be made "at any time and in any manner explicitly agreed to by the parties." [FN106] Moreover, identification may be tentative or contingent by agreement, [FN107] and there is no requirement under the U.C.C. that the goods be in a deliverable state at the time of identification." [FN108] Because the U.C.C. takes a broad approach to the term "goods," it is probably the case that computer software falls within its domain.

Patent attorneys have, for over twenty years, wrestled with the issue whether software is sufficiently "tangible" to enable it to be covered by the Patent Act. [FN109] The Patent Act provides that a patent may be obtained on any useful, new and nonobvious "process, machine, manufacture, composition of matter, or any new and useful improvement thereof." [FN110] This section of the Patent Act is sufficiently ambiguous that courts have made inconsistent determinations of software patentability.

In Diamond v. Diehr [FN111] the United States, Supreme Court enunciated the definitive rule that one must first determine whether a mathematical algorithm is directly or indirectly recited in the claim, and if so, determine whether the claim merely recites a mathematical algorithm. [FN112] 'If the answers to both questions are in the affirmative, the claim is nonstatutory; otherwise it is statutory.' [FN113] In the software context, the rule embodied in In re Abele [FN114] is that a computer program is not merely an algorithm, and is therefore patentable, if it is applied in any manner to physical elements--such as a particular type of computer--or process steps. [FN115]

The Copyright Act (the Act) recognizes the statutory problems posed by computer software. [FN116] The Act also explicitly recognizes computer software as a 'tangible medium of expression' in a recent amendment to the Act, and bestows exclusive rights upon owners of computer programs. [FN117] Insofar as all computer programs fall into the domain of the Act and some computer programs combined with computer hardware fall into the domain of the Patent Act, it is submitted that the U.C.C.'s broad definition of 'goods' should implicitly include computer software as well. [FN118] Courts almost unanimously share this sentiment.

In Triangle Underwriters, Inc. v. Honeywell, Inc., [FN119] the District Court for the Eastern District of New York noted that software consists of both intangible intellectual property aspects, represented by ideas and concepts, and the resulting product of those intellectual property aspects which is software. [FN120] The court held that the system as a whole was within the Article 2 definition of goods. [FN121] On appeal, the United States Court of Appeals for the Second Circuit enunciated the general rule that a 'contract is for 'service' rather than 'sale' [only] when 'service predominates,' and the sale of items is 'incidental." [FN122]

Similarly in RRX Industries, Inc. v. Lab-Con Inc., [FN123] the United States Court of Appeals for the Ninth Circuit held that, in determining whether a contract is one for sale or to provide services, courts must look to the essence of the agreement. [FN124] When a sale predominates, incidental services rendered do not alter the basic transaction. [FN125] The court held that the sale of software predominated in the transaction at bar. [FN126] Thus, employee training, repair services and system upgrading were merely incidental to the sale of the software package, and did not prevent characterizing the computer system as a good. [FN127]

In Neilson Business Equipment Center, Inc. v. Monteleone [FN128] the Delaware Supreme Court determined that the contract between Dr. Monteleone and Neilson Business Equipment Center was a mixed contract for both goods and services. [FN129] The court stated: '[w]hen a mixed contract is presented, it is necessary for a court to review the factual circumstances surrounding the negotiation, formation and contemplated performance of the contract to determine whether the contract is predominantly or primarily a contract for the sale of goods.' [FN130] The court based its determination that the contract was primarily for the sale of goods on Dr. Monteleone's intent to purchase a 'turn-key' system, and not to obtain the hardware and software separately. [FN131]

By contrast, in Computer Servicenters, Inc. v. Beacon Manufacturing Co., [FN132] an action involving a contract for data processing services, the United States Court of Appeals for the Fourth Circuit affirmed the lower court's ruling that, because the definition of goods is cast in terms of a contract for sale, the contract in controversy was not for the sale of goods but was for performance of services. [FN133] Additionally, in Data Processing Service, Inc. v. L. H. Smith Oil Corp., [FN134] which involved a contract for the development of custom designed accounting software, the Indiana Court of Appeals held that the parties contracted for services and not for goods. [FN135] The court stated that '[t]he very terminology used by the trial court and the parties here show services, not goods were that for which Smith contracted. DPS was to act with specific regard to Smith's need.' [FN136] The fact that the end result was to be delivered by means of some physical manifestation of the services such as magnetic tape, floppy disc or hard disc was immaterial and merely incidental. [FN137] Rather, the material element of the transaction was the purchaser's bargaining for the vendor's 'knowledge, skill, and ability.' [FN138]

2. Computer Sales Fall Under the Implied Warranty of Merchantability

The U.C.C. provides that 'a warranty that the goods shall be merchantable is implied in a contract for their sale....' [FN139] This contextual warranty cannot be found in the standard computer contract; rather, it arises from the commercial setting surrounding the transaction. [FN140] Yet, '[a] warranty that the law implies from the existence of a written contract is as much a part of the writing as the express terms of the contract.' [FN141]

In Neilson, [FN142] the court reaffirmed this principle, declaring that '[e]very contract of sale entered into by a merchant includes an implied warranty that the goods sold be 'merchantable." [FN143] Additionally, a 'computer system, to be merchantable, must have been capable of passing without objection in the trade under the contract description, and be fit for the ordinary purposes for which it was intended.' [FN144]

The Neilson court enunciated the elements necessary to prove a breach of he implied warranty of merchantability. These elements are: '(1) that a merchant sold the goods; (2) that such good were not 'merchantable' at the time of sale; (3) tat plaintiff was damaged; (4) that the damage was caused by the breach of the warranty of merchantability; and (5) that the seller had notice of the damage.' [FN145] The court then addressed the question whether Neilson's status as an 'original equipment manufacturer' (OEM) distributor, that is, a distributor of goods which affixes its own label to products it resells, [FN146] affected its classification as a merchant. [FN147] The court concluded that, although Neilson did not manufacture the computer equipment purchased by Dr. Monteleone, it held itself out as having a professional status with regard to computers, thereby elevating it to the status of a merchant. [FN148]

In Cricket Alley Corp. v. Data Terminal Systems, Inc., [FN149] the Kansas Supreme Court interpreted the implied warranty of merchantability as it applied to computer cases. The court held that under the implied warranty of merchantability computer equipment is warranted to be reliably regular and consistent. [FN150] In dictum, the court intimated that undependability in a computer system is, in some ways, worse than not owning a computer altogether. [FN151]

Similarly, in Aubrey's R.V. Center, Inc. v. Tandy Corp., [FN152] the Washington Court of Appeals held that, although all of the hardware and some of the programs did perform properly, the system as an integrated whole did not. [FN153] This act supported a finding by the lower court of substantial impairment, a prerequisite for revocation of acceptance under the U.C.C. [FN154]

Therefore, it seems that courts will apply the implied warranty of merchantability to vaporware cases. However, when the parties have contractually excluded the implied warranty of merchantability, [FN155] a dissatisfied purchaser has sacrificed the causes of action available to it under this warranty unless it can prove unconscionability. [FN156]

3. Computer Sales Under the Implied Warranty of Fitness for a Particular Purpose

The U.C.C. provides that when a seller reasonably knows or should know at the time of contracting that the purchaser is relying on the seller's skill or judgment to select suitable goods, the goods carry with them an implied warranty that they will be fit for the purpose for which they were purchased. [FN157] When these elements are satisfied, the implied warranty will in all instances attach to the goods, unless the parties have contractually excluded them. [FN158]

In Neilson, [FN159] the court reiterated this principle and further held that '[t]he buyer need not provide the seller with actual knowledge of the particular purpose for which the goods are intended or of his reliance on the seller's skill and judgment.' [FN160] Rather, the warranty will attach to the goods if the circumstances are such that the seller merely has reason to perceive the purpose intended or that reliance exists. [FN161]

In Cricket Alley, [FN162] the court indicated that the purchaser had indeed relied on the advice of the seller. [FN163] The court determined that the capability of new equipment to communicate with the plaintiff's computer was the prime consideration in the transaction. The failure of this capability breached the implied warranty of fitness for a particular purpose. [FN164]

The implied warranty of fitness for a particular purpose, therefore, often attaches to the sale of computer merchandise. One commentator suggests, however, that the implied warranty of fitness for a particular purpose should not attach to all sales of computer software. [FN165] Most software is designed to accomplish specific functions, such as accounting or word processing. [FN166] However, to allow the warranty of fitness to attach in all such instances would impose higher or additional obligations upon the vendor, even though it had no direct dealings with the purchaser and did not undertake any added responsibilities. [FN167]

4. Limitation of Remedy

The U.C.C. allows parties to a sales agreement to provide for remedies in place of, or in addition to, those remedies otherwise provided in the U.C.C. [FN168] Computer vendors will typically invoke this section and warrant only that they will repair or replace defective equipment within the warranty period. [FN169] Vendors' warranties may also provide that this limited remedy is exclusive. [FN170]

In Office Supply Co., Inc. v. Basic/Four Corp., [FN171] the court determined that this practice was permissible under the U.C.C. [FN172] In particular, the court allowed an exclusion of all implied warranties and a provision for a ninety-day express warranty limited to repair and replacement. [FN173] The court based its determination on its approval of similar contractual provisions in a previous case, and other courts' implicit approval of such provisions. [FN174]

Limitation of remedy provisions are advantageous to both parties to a computer sales agreement. If a computer system fails, the vendor is in the best position to provide the services and parts required to correct its effects. The purchaser will thereby receive the initially bargained-for product. Additionally, the vendor may contract to repair only those products which it is able to repair. Thus, courts have enforced such provisions and recognized rights and duties created by them.

5. Limitation of Damages

The U.C.C. permits parties to a computer contract to agree upon liquidated damages [FN175] and to limit consequential damages. [FN176] The U.C.C. also permits parties to exclude implied warranties of merchantability and fitness for a particular purpose. [FN177] This implies that the vendor may be exculpated from liability for all types of damages, including direct, consequential and incidental damages, which arise under these implied warranties. Furthermore, parties may allocate or divide the risks of nonperformance or defect among themselves in any proportion they choose. [FN178]

Vendors commonly insert disclaimers of all types of damages and, in case those fail in court, include a clause limiting their total liability under the contract to some maximum amount. [FN179] One commentator suggests that the use of such maximum liability clauses seems less offensive than the use of type-specific damage disclaimers. [FN180] When the amount of maximum liability is less than the purchase price, the limitation may amount to an assumption of risk by the purchaser. [FN181]

In Office Supply, [FN182] the court held that damage limitation clauses are valid. [FN183] Moreover, in a commercial setting damage limitation clauses are presumptively valid and the contracting parties are presumed to have acted at arm's length. [FN184] Indeed, the United States Court of Appeals for the Eighth Circuit stated in Hunter v. Texas Instruments, Inc. [FN185] that damage limitation clauses may also properly be used to limit manufacturers' liability in remote contracts to which the manufacturer is not a party. [FN186]

Damage limitation clauses are, therefore, proper in computer contacts. In some instances, they ma even be an attractive means for the parties to predetermine heir exposure to potential liability. Consequently, damage limitation clauses may help parties to create precise computer contracts which leave little room for judicial interpretation or construction.

6. Conspicuousness

The U.C.C. provides that, in order to exclude or modify the implied warranty of merchantability, the relevant contractual language must state 'merchantability' and be conspicuous. [FN187] In order to exclude the implied warranty of fitness for a particular purpose, the relevant contractual language

must only be conspicuous. [FN188] The U.C.C. defines the term 'conspicuous' as language which 'a reasonable person against whom it is to operate ought to have noticed . . ..' [FN189] Furthermore, language in the body of a contract is 'conspicuous' if it is in 'larger or other contrasting type or color.' [FN190]

The test of conspicuousness is objective: it is 'whether attention can reasonably be expected to be called to [the contractual language].' [FN191] The objective nature of conspicuousness was reiterated by the United States Court of Appeals for the Eighth Circuit in Hunter. [FN192] There, the court found that the contractual disclaimer, which was in larger type than the surrounding language, satisfied the U.C.C. standard and was indeed conspicuous. [FN193]

Therefore, it appears that the issue of conspicuousness is a question of law which must be decided by the court. [FN194] The United States District Court for the Southern District of Ohio reiterated this principle in AMF, Inc. v. Computer Automation, Inc. [FN195] The court rejected AMF's 'conspicuousness defense,' holding that a business as large as AMF should have been, and most likely was, aware of the language disclaiming implied warranties. [FN196] It therefore appears that in a commercial setting courts should presume that parties subjectively and objectively understand such disclaimers.

This principle had already been expressed in dicta by the Texas Court of Appeals in W.R. Weaver Co. v. Burroughs Corp. [FN197] In Weaver, a computer lease contained a disclaimer of all warranties and all prior representations which was written in lower case lettering. [FN198] Although the court stated that the U.C.C. precluded application of the conspicuousness standard to the lease, it nonetheless held that the contractual disclaimer was 'so written that a person against whom it would operate should have noticed it, particularly since this is a commercial transaction.' [FN199]

In contrast, the United States District Court for the Eastern District of Wisconsin held in Office Supply [FN200] that disclaimers written in italicized print, in contrast to the regular print used on the rest of the contract, are nevertheless inconspicuous. [FN201] The court held, however, that when a buyer is actually aware of a warranty disclaimer, then the disclaimer is effective even if it is not conspicuous. [FN202]

In light of the above, courts will not allow an inconspicuousness defense against a warranty disclaimer when the party against whom enforcement is sought should have been, or actually was, aware of a disclaimer. The above decisions clearly reflect the objective test of conspicuousness found in the U.C.C. In addition, where the purchaser was actually aware of a disclaimer, it may not rely upon an inconspicuousness defense, notwithstanding the conspicuousness of the disclaimer. Thus, it appears that the judiciary has imposed an additional and alternative subjective standard on such claims.

7. Failure of an Express Warranty's Essential Purpose

The U.C.C. provides that express warranties may be created by the purchaser's reliance upon any oral or written affirmation of fact, promise or description of the goods. [FN203] However, in some circumstances an express warranty may be claimed to have failed of its 'essential purpose.' [FN204] For example, a limited repair remedy fails of its essential purpose when the 'warranted goods fail to perform according to specifications as warranted despite the seller's efforts to repair . . ..' [FN205]

In the event that an express warranty fails of its essential purpose, a purchaser may pursue any remedy available under the U.C.C., despite contractual damage and warranty disclaimers. [FN206] Such 'otherwise available damages' may include consequential damages which are generally 'exactly what the disappointed buyer is seeking.' [FN207] However, courts differ as to whether failure of essential purpose of a limited remedy does indeed negate an otherwise valid disclaimer of consequential damages. [FN208]

In RRX Industries, Inc. v. Lab-Con, Inc., [FN209] the majority determined that a plaintiff may pursue the U.C.C.'s otherwise available remedies for breach of contract if its exclusive or limited remedy fails of its essential purpose. [FN210] However, the minority posited that a 'repair remedy [which] failed of its essential purpose does not automatically lead to the further conclusion that a limitation of damages provision should not be enforced.' [FN211] Allowing the plaintiff to resort to all of the remedies under the U.C.C., the dissent argued, ignores the fundamental goal of section 2-719 to require parties to accept the legal consequences of a contract. [FN212]

The AMF court [FN213] held that whether a limited remedy failed of its essential purpose 'will depend on whether the warrantor diligently made repairs, whether the repairs cured the defects, and whether the consequential loss in the interim was negligible.' [FN214] The court further held that consequential losses need not be considered if the contract excludes liability for them. [FN215] In contrast to AMF, the Office Supply [FN216] court held that '[i]f a remedy is limited to repair and consequential and incidental damages are excluded, . . . then even if the repair remedy fails of its essential purpose, the buyer is limited to his breach of the bargain damages.' [FN217] But if the purchaser can prove that the exclusion of incidental and consequential damages was unconscionable, it may recover breach of the bargain, incidental and consequential damages. [FN218]

Thus, an express warranty fails of its essential purpose when the good does not perform as warranted and the vendor either cannot or will not resolve the defect. In these circumstances, purchasers are entitled to recover damages available under the U.C.C., such as breach of the bargain damages, and perhaps even consequential and incidental damages. When a contract also contains type- specific damage disclaimers, however, the courts are split as to whether a purchaser may recover consequential and incidental damages under the U.C.C.

8. Unconscionability

The issue of the unconscionability of computer contract provisions is one of the most widely litigated areas of computer law. Additionally, it has received more treatment in secondary sources than any other computer contract related issue. Although no court has yet adopted unconscionability as a means f vitiating oppressive contractual disclaimers in computer sale, commentators collectively favor its application in this area and several cases contain language strikingly similar to language found in these commentators' articles.

The U.C.C. provides that courts may exclude unconscionable portions of a contract or strike a contract as a whole if it contains unconscionable provisions. [FN219] The U.C.C. also specifically imposes this principle upon damage disclaimers. [FN220] Interpretation of the U.C.C. has yielded two types of unconscionability: procedural unconscionability, which is characterized by the 'absence of meaningful choice;' and substantive unconscionability, which involves unjust and harsh contract terms which are 'unreasonably favorable to the other party.' [FN221]

Procedural unconscionability has two components: 'oppression,' which results from unequal bargaining power; and 'unfair surprise,' which results from hidden contractual terms that one party seeks to enforce against the other. [FN222] Substantive unconscionability usually involves harsh, one-sided terms. [FN223]

The criteria by which a court will determine the existence of unconscionability are: '(i) examination of the negotiation process and length of time in dealing; (ii) the length of time for deliberations; (iii) the experience or astuteness of the parties; (iv) whether counsel reviewed the contract; and (v) whether the buyer was a reluctant purchaser.' [FN224]

Computer hardware and software purchasers frequently argue that warranty and damage disclaimers are unconscionable in order to avoid their harsh effects. [FN225] However, their claims have been categorically unsuccessful, regardless whether they allege procedural or substantive unconscionability. [FN226]

Most claims of unconscionability have been between commercial parties. This was the crucial factor in the Fifth circuit's denial of the plaintiff's unconscionability claim in Earman Oil Co. v. Burroughs Corp. [FN227] The court held that in commercial settings businessmen are presumed to act at arm's length; thus neither procedural nor substantive unconscionability will attach. [FN228]

In Hunter v. Texas Instruments, Inc., [FN229] the Eighth Circuit focused on the purchaser's subjective knowledge and experience in denying Hunter's unconscionability claim. [FN230] The court took note of the purchaser's college education and the fact that he shopped around extensively before selecting the computer he eventually purchased. [FN231] Thus, the court found neither the absence of meaningful choice on the part of the plaintiff nor terms unreasonably favorable to the defendant. [FN232]

In AMF Inc. v. Computer Automation, Inc., [FN233] the purchaser claimed procedural unconscionability based on the inconspicuous nature of warranty disclaimers. [FN234] The court held that mere inconspicuousness is not sufficient to establish unconscionability under the U.C.C. [FN235] The court also denied AMF's substantive unconscionability claim. [FN236]

Perhaps the closest that any court has come to invoking the unconscionability doctrine in a computer sales case is in Horning v. Sycom. [FN237] In Horning, a solo medical practitioner sought protection from a contractual forum selection clause under the principle of procedural unconscionability. [FN238] While the United States District Court for the Eastern District of Kentucky denied this argument, it recognized the disparity in bargaining power and stated:

While the court cannot say that the defendant has engaged in overreaching, it does regard the clause as bordering on unconscionability as applied to the sale of an important piece of office machinery to a small businessman or the substantial price involved . . .. The forum selection clause is only one of many clauses in the form contract that together represent the best job of boiler-plating since the building of the Monitor. [FN239]

Thus, courts have largely ignored the unconscionability claims of parties to computer contracts. These denials have occurred repeatedly regardless of whether the contract negotiating environment was commercial or otherwise. However, it appears that courts may be moving in the direction of allowing unconscionability claims where the vendor is a relatively large commercial entity and the purchaser, regardless of its size, is inexperienced in the use of computers.

It is submitted that courts should more liberally invoke the doctrine of unconscionability than they do in other areas of the law. Unconscionability should apply in all compelling vaporware cases where purchasers are individuals or relatively small business entities, and are not members of the computer industry. However, the doctrine should not apply to vaporware cases involving large commercial entities or purchasers of any size that are members of the computer industry.

C. Fraud and Misrepresentation

Computer experts and neophytes alike often depend on the advice of salespeople in selecting computer equipment. [FN240] In the course of procuring sales, a computer vendor will often make written and oral statements designed to induce the user to select its products and services. [FN241] Some of these statements are ere puffery, [FN242] while others may provide the basis of the bargain. Those statements which provide the basis of the bargain and are untrue may provide an additional basis for a lawsuit for fraud or misrepresentation.

Recently, dissatisfied computer purchasers have brought causes of action for fraud and misrepresentation against vendors with increasing frequency. [FN243] If a purchaser can show that any of a vendor's representations were made with the intent to induce the purchase of the vendor's products and services, that the misstatement was material, and that the purchaser obtained the vendor's system relying on such a misstatement to its detriment, then a valid cause of action for fraud will lie. [FN244]

In Management Assistance, Inc. v. Computer Dimensions, Inc., [FN245] the United States District Court for the Northern District of Georgia enunciated the elements necessary to establish a fraud claim:

(1) [A] misrepresentation by defendant of a material existing fact, (2) with knowledge that it was false or with reckless disregard as to whether it was true, (3) with intent to deceive plaintiff, and (4) plaintiff acted upon the misrepresentation in reasonable reliance upon its veracity in a manner which caused proximate injury. [FN246] The court rejected the plaintiff's claim of fraud [FN247] because the plaintiff's signature had not been 'obtained by trick or artifice.' [FN248]

In AccuSystems, Inc. v. Honeywell Information Systems, Inc., [FN249] the United States District Court for the Southern District of New York held that the elements for fraud in the inducement consist of a representation of fact which: 1) was recklessly made or known by the vendor to be untrue; 2) was offered to deceive the purchaser into acting upon the representation; and 3) caused injury. [FN250] The court found in favor of the purchaser on the fraud claim, but denied recovery of lost profits and punitive damages, because '[t]he evidence [did] not establish that the false representations were made maliciously or wantonly or that Honeywell's conduct was actuated by evil motives.' [FN251]

In Graphic Sales, Inc. v. Sperry Corp., [FN252] a purchaser brought suit against a computer vendor, seeking additional computer software that the vendor had advertised along with the purchased computer. [FN253] The advertisement did

not expressly state that the software was 'bundled' with the computer; rather, it merely stated that the software was 'available.' Therefore, the United States Court of Appeals for the Seventh Circuit decided as a matter of law that no misrepresentation had occurred, and dismissed the action. [FN254] In a similar case, [FN255] however, the United States Court of Appeals for the Fourth Circuit held that questions of misrepresentation are for the jury to decide. [FN256]

Although fraud is tortious conduct which is compensable despite contractual disclaimers, courts have in several computer fraud cases applied contract law. In Earman Oil Co. v. Burroughs Corp., [FN257] the United States Court of Appeals for the Fifth Circuit held that integration clauses in sales contracts prevent consideration of prior representations. [FN258] The court enigmatically stated that 'the misrepresentation claim is in essence a contract-related claim and thus redundant and impermissible.' [FN259]

Additionally, in Kalil Bottling Co. v. Burroughs Corp., [FN260] the Arizona Court of Appeals held that a sales contract specifically negated the defendant's alleged misrepresentations. [FN261] Consequently, the plaintiff's claims for negligent misrepresentation, fraud and consumer fraud, based upon statements made prior to the signing of the contract, were not permitted under the parol evidence rule. [FN262]

By contrast, in Sierra Diesel Injection Services v. Burroughs Corp., [FN263] the court held that the parol evidence rule may not be invoked in order to excluded evidence of fraud in the inducement of a contract, even where the court finds an integrated agreement. [FN264] The court based its conclusion on the principle that fraud in the inducement invalidates the entire contract. [FN265]

In dictum, the Sierra court distinguished statements of opinion and statements of fact. [FN266] The court posited that mere puffery is 'outside the scrutiny of courts.' [FN267] Additionally, the determination whether a statement is one of opinion or fact must be made in light of the context and circumstances in which it was made. [FN268]

In Consolidated Data Terminals v. Applied Digital Data Systems, Inc., [FN269] the United States Court of Appeals for the Ninth Circuit recognized that plaintiffs commonly and vehemently argue fraud claims, because they may be entitled to recover punitive damages if they prevail. [FN270] Additionally, the court held that direct damages under a fraud theory are based on an 'out-of-pocket' measure, as opposed to a contract theory's 'benefit-of- the-bargain' measure. [FN271]

Thus, those courts that have tried fraud claims in the context of computer sales have established several rules. The elements necessary to establish a fraud claim are: (1) defendant's misrepresentation of a material existing fact; (2) defendant's knowledge that it was false, or reckless disregard as to whether it was true; (3) defendant intended to deceive plaintiff; and (4) plaintiff acted in reasonable reliance upon the veracity of the misrepresentation in a manner which proximately caused injury. The determination whether a statement is one of fact or opinion should e left to the fact finder. The parol evidence rule, in combination with a contractual integration clause, may bar fraud claims in some jurisdictions. Finally, if the plaintiff prevails, it may recover 'out-of-pocket' direct damages and perhaps punitive damages as well.

D. Damages

Inherent in the sale of each computer system are direct and indirect risks of the failure of technology and the seller's nonperformance due to management or financial problems. [FN272] Because businesses generally rely heavily on the use of computers, [FN273] a system failure may cause an individual business to suffer substantial losses or perhaps even bankruptcy. [FN274] Thus, it is important for computer purchasers to know whether and what damages are recoverable from their potentially disastrous purchases of vaporware.

1. Damages Available Under Contract Theories

In the event of a vendor's nondelivery of computer goods in breach of a contract, or the vendor's repudiation of that contract, the purchaser is entitled to recover the difference between the market value of the goods at the time of breach and the contract price, plus incidental and consequential damages, but less costs saved due to the breach. [FN275] If the purchaser has accepted delivery of goods which prove to be defective, then it may recover the difference between the value of the goods had they been delivered as warranted and their actual value, plus perhaps incidental and consequential damages. [FN276] Consequential damages consist of losses to person or property caused by a breach that the seller had reason to know would occur and which 'cover' could not have prevented. [FN277] Incidental damages consist of any reasonable expenditures for the care and custody of rejected gods, cover and other reasonable expenses. [FN278]

The U.C.C. provides that the purchaser must cover; [FN279] however, failure to cover does not prevent the purchaser from seeking other remedies. [FN280] Furthermore, the U.C.C. promotes the liberal administration of its remedies in order to put the aggrieved party 'in as good a position as if the other party had fully performed.' [FN281]

The issue of whether goods are impaired and the plaintiff has suffered injury is generally recognized as a factual question. [FN282] Once the fact finder has determined that the plaintiff has suffered an injury, then the plaintiff is entitled to at least nominal damages. [FN283] Furthermore, if the vendor breaches a computer contract, then the purchaser may recover the difference between the fair market value of the goods accepted and the value the goods would have had if they had been delivered as warranted. [FN284]

Usually courts equate the purchase price with the value of the product if it had been as warranted. [FN285] However, in special circumstances, courts may use other measures. [FN286] Sometimes the value of the product if it had been as warranted is several times the purchase price, and the aggrieved party may recover disproportionate damages under the benefit of the bargain theory. [FN287] Although the risk of this penalty may discourage sales by small computer companies, the parties may agree to contractually limit the vendor's total liability and lower the contract price as its consideration. [FN288]

In some cases, the aggrieved party may recover incidental and consequential damages as well. [FN289] In order for the plaintiff to recover consequential damages, the defendant must have had reason to know that the plaintiff would incur those damages in the event of the defendant's breach. [FN290]

Consequential damages may include economic damages, such as loss of goodwill [FN291] or they may consist of increased labor costs attributable to the failure of the bargained-for computer system. [FN292] They may also include finance charges associated with a third-party lease arrangement [FN293] or even sales tax arising from the purchase of the computer system. [FN294]

The aggrieved party must also abide by the cover provisions of the U.C.C. If it fails to cover, a plaintiff may not recover damages which result after it learns of the breach. [FN295] Finally, the aggrieved party will not be awarded punitive damages under any contract theory, regardless of whether the breach is found to be gross or even willful. [FN296] It should be noted, however, that courts will impose attorney fees and single or double costs as sanctions for bringing a frivolous action. [FN297]

2. Damages Available Under Other Theories

Generally, punitive damages are available under fraud and misrepresentation theories. Furthermore, courts will award lost profits, that is, "benefit of the bargain" damages, only where the breaching party’s false representations were malicious or wanton, or its conduct was actuated by evil motives. [FN298] However, courts are in some cases reluctant to award economic losses where the aggrieved party can be sufficiently compensated under the U.C.C. [FN299]

E. Computer Malpractice

Computer technology is evolving and progressing at such a rapid rate that members of the computer industry are the only ones able to keep abreast of all of the daily advancements. [FN300] However, even manufacturers and vendors find that it is impossible to stay fully informed of currently available computer products, pending product introductions, product capabilities, pricing and other industry developments. [FN301] The number and diversity of computer products are so overwhelming that it is safe to say that computer purchasers are generally uninformed, if not naive, about computers.

It is apparent that computer purchasers know far less than computer professionals. Because of this disparity in the level of expertise of the computer purchaser and vendor, and because traditional tort and contract theories are often inadequate for resolving legal problems involving computers, it is submitted that dissatisfied purchasers need a more effective cause of action, specifically computer malpractice, to resolve their legal difficulties. As between experts and laymen, those who represent themselves as knowledgeable in the field of computers should bear the risk of computer failure. [FN302]

In two cases, courts have addressed the issue whether computer malpractice should be a viable cause of action. [FN303] This cause of action places computer vendors in the same professional context as physicians, attorneys, accountants, architects and engineers, [FN304] and holds "computer professionals" to a higher standard of care than a mere reasonableness standard. [FN305] Such a cause of action would vitiate contractual damage and warranty disclaimers, [FN306] thereby enabling dissatisfied purchasers to recover losses when other legal remedies are ineffective or inadequate.

Under traditional malpractice principles, professionals must exercise reasonable care and the measure of skill and knowledge ordinarily possessed by members in good standing in that profession. [FN307] "Professions" are characterized as: (1) based on a well defined body of knowledge; (2) limited to those individuals with high standards of behavior and competence; (3) having at least one association which promotes these high standards; (4) guided by a code of ethics; and (5) whose members assume a high degree of personal responsibility to act in an ethical way toward society in general and their clients in particular. [FN308] As a corollary, the typical professional malpractice action consists of the following elements: (A) the defendant has an elevated legal duty of care (B) which was breached by action or inaction, (C) thereby proximately causing (D) damage or injury to the plaintiff. [FN309]

Commentators have suggested that unlike physicians, attorneys, accountants, architects, engineers and others, members of the computer industry do not engage in a profession. [FN310] It is submitted that this conclusion is false and that its proponents rely upon fallacious reasoning. The computer industry is indeed a profession, for it satisfies each of the above mentioned characteristics of a profession.

First, the computer industry is based on a well defined body of knowledge; however, this body of knowledge is constantly expanding. At any moment the amount of this information is so vast that no single member of the industry can claim to know its entirety. Rather, individual members know only relatively small portions of the available information and they can learn what they do not already know by either consulting with other members or referring to a plethora of written or 'stored' information. Thus, each member of the computer industry is a 'specialist' and each 'practices' a specialty such as software or hardware research, development, sales or marketing.

Physicians, attorneys, accountants, architects, engineers and others also possess only a limited amount of information regarding their respective professions. The members of each of these professions often specialize their practices, and refer to other members or to stored information to learn what they do not already know. Thus, the computer industry is analogous to more traditional professions in that it possesses a well defined body of knowledge.

It is further submitted that the computer industry is based on a well defined body of knowledge insofar as computer information is subject to technological advancements which are knowable by members of the industry. Similarly, more traditional professions are based on bodies of knowledge which are generally expanding due to scientific advancements, except perhaps the fields of accounting, law and psychiatry, which are based on subjective and artificial principles.

One commentator has suggested that a distinction should be drawn between the computer industry and traditional professions, insofar as members of the latter group must attend specialized institutions of higher education that teach a relatively standard curriculum and that members of the former group are not required to do so. [FN311] This characterization is based on either a false premise or an artificial distinction at best.

There is no question that physicians must undergo an extensive, rigorous and relatively standard higher education. Additionally, attorneys must undergo standard higher education in all states except California. However, accountants, architects, engineers, pharmacists, nurses and other professionals may practice their respective professions after having received only an undergraduate education. Additionally, abstracters of title, chiropractors and pilots may fulfill their educational requirements in a period of just two years or less. Yet, all of the above are designated 'professions' and their members are subject to malpractice lawsuits.

Members of the computer industry do not categorically undergo extensive, standard higher education. Rather, discrete groups within the industry such as electrical engineers, software engineers, metallurgical engineers and others must obtain at least an undergraduate degree in fields which offer a relatively standard curriculum. Additionally, they may, and often do, obtain advanced degrees prior to or during their employment by computer hardware or software manufacturers. Furthermore, engineers within the computer industry are subject to malpractice suits regardless of their involvement in the computer industry.

Members of the computer industry who are involved in marketing must also receive undergraduate degrees and often advanced business degrees prior to their employment. Computer salespeople are also generally required to possess an undergraduate degree prior to their employment. However, they need not study any particular curriculum.

Technicians--computer repair and maintenance people--are the only members of the computer industry who need not obtain an undergraduate degree prior to their employment. Two computer industry associations, the Association for Computing Machinery (ACM) and the Data Processing Management Association (DPMA), have both sought, but failed, to establish a standard curriculum for computer technicians. Currently, technicians are generally required to obtain a one-year technical electronics degree beyond their high- school education. In addition, during the course of their employment by distributors and retailers, technicians--as well as salespeople--almost invariably attend a number of training courses sponsored by manufacturers of various computer products.

Each technician training course is an intensive hands-on' class which lasts for approximately one week, and teaches the repair and maintenance of a subsection of each manufacturer's total line of available computer products. Technicians generally attend one or more training classes sponsored by each major computer manufacturer, and learn in great detail about the workings of most computer products they must eventually repair and maintain. Furthermore, distributors and retailers receive confidential technical periodicals from each computer manufacturer whose products they sell. These periodicals provide an additional base of stored information for technicians.

Thus, the above mentioned 'higher education' distinction is artificial or arguably false. Not all members of traditional professions must attend specialized institutions of higher learning for an extended period of time. Furthermore, members of the computer industry are not 'stuffed with hasty and far from professional computing skills.' [FN312] Rather, they receive substantially more education than nonprofessionals, and their training often rivals the education received by most members of traditional professions.

Second, the computer industry is limited to those individuals with high standards of behavior and competence. Members of the computer industry are generally highly motivated and committed workers who are keenly aware of their customers and civic responsibilities. [FN313] They are also self-professed 'workaholics' who would, in the words of one expert, 'rather do this than stock a dairy case.' [FN314] Thus, the computer industry is analogous to other traditional professions, insofar as both sets of members attempt to derive some type of personal and social satisfaction from their efforts. [FN315]

Third and finally, the computer industry has at least one association which promotes high standards of behavior and competence, and has established ethical norms for the industry. [FN316] for example, a group of twelve of the largest computer mail-order firms have formed a trade group that plans to establish a set of business guidelines protecting the interests of both their members and consumers. [FN317] Additionally, ABCD, The Microcomputer Industry Association, has established a code of ethical standards which currently affects approximately twenty-five percent of the computer industry. [FN318] These organizations’ efforts reflect computer professionals’ recognition that consumers know substantially less than computer professionals know about computers. [FN319] Thus, it is submitted that members of the computer industry are attempting to become recognized as professionals, thereby requiring all of the industry’s members to act according to higher ethical standards. Yet courts that have considered this issue refuse to place members of the computer industry under the same scrutiny as other professionals.

In Chatlos Systems, Inc. v. National Cash Register Corp., [FN320] the United States District Court for the District of New Jersey refused to analogize computer vendors to other professionals. [FN321] The court stated "[s]imply because an activity is technically complex and important ot the business community does not mean that greater potential liability must attach." [FN322] However, this decision ignores the total trust and confidence that computer purchasers often place in vendors. [FN323]

In Triangle Underwriters, Inc. v. Honeywell, Inc., [FN324] the United States Court of Appeals for the Second Circuit similarly rejected the notion that computer vendors should be classified as professionals. [FN325] This classification is properly a function of the "trust and reliance that exists between a lay plaintiff and a professional defendant." [FN326] In the case of attorney malpractice, it is presumed that "[t]he client is hardly in a position to know the intricacies of the practice or whether the necessary steps in the actions have been taken." [FN327] In the case of architect malpractice, "generally the client is required to rely almost totally on the professional advice of the architect. He must have confidence in the architect and place his full trust in him." [FN328] Consequently, the court ws unwilling to "[clothe] sellers or manufacturers of machinery in the garb of members of the learned professions." [FN329] To allow the plaintiff’s contention, "and apply [malpractice concepts] generally to the law of commercial sales, would open Pandora’s box...." [FN330]

As in Chatlos, the Triangle court ignored the unique relationship of trust that exists between computer purchasers and vendors. The court also ignored the disparity in knowledge between the parties to computer contracts that is so common to the practice of law. Finally, the court underestimated the time and effort that computer vendors expend toward learning enough about computers and their capabilities in order to satisfy their customers’ demands. Although computer salespeople are neither formally educated nor certified, their relative level of expertise should earn them the right to be recognized as professionals.

If members of the computer industry become recognized as professionals, and a malpractice cause of action becomes available to dissatisfied computer purchasers, then plaintiffs may enjoy certain procedural advantages. For example, in some states the statute of limitations may be longer for malpractice claims than for other tort or contract claims. [FN331] Furthermore, the relevant statute of limitations may be delayed for a malpractice claim under tolling principles such as fraudulent concealment or the continuous treatment doctrine. [FN332]

Plaintiffs in computer malpractice claims may enjoy substantive advantages as well. For example, plaintiffs who are not in privity with sellers may recover for their economic loss; in strict liability claims they cannot. [FN333] Sellers in computer malpractice claims may not be able to contractually limit or exclude damages or limit the purchaser's remedies. [FN334] Plaintiffs may not need to aver or prove scienter, as they must in fraud and misrepresentation claims. [FN335] Finally, defendants will not be able to argue that their statements were merely opinion and not fact, for courts may regard such distinctions as irrelevant. [FN336]

It is submitted that the enhanced judicial regulation that would result if computer sellers were viewed as professionals would protect the public interest. [FN337] It is further submitted that the time is ripe for establishing a paradigm for holding negligent or unscrupulous computer professionals liable for their actions. Computer malpractice should apply when it is clear that the consumer relied on the skill and judgment of the professional in selecting a defective system.

IV. CONCLUSION

The chasm which divides the average purchaser's knowledge about computers from that knowledge possessed by manufacturers, distributors and retailers suggests that the environment surrounding computer sales is currently unlike that surrounding the sale of almost all other items. This disparity provides a unique opportunity for the seller to have its way with an unsuspecting buyer.

Standard form agreements only perpetuate the disparity of bargaining power which is inherent in computer sales. It is submitted that, although courts have thus far been unwilling to review these form agreements in light of principles of unconscionability, the judiciary should apply the doctrine of unconscionability more liberally, as it does in other areas of the law. But not all computer sales involving standard contracts should be interpreted under an unconscionability analysis.

Courts should invoke other portions of the U.C.C. for all transactions between large commercial entities, and for all transactions in which a computer company of any size purchases computer equipment. The doctrine of unconscionability should be applied only in compelling cases involving purchasers that are individuals or relatively small business entities that are not members of the computer industry. Courts should carefully analyze the setting of each computer sale involving at least one individual purchaser or one relatively small commercial entity that is not a member of the computer industry, in order to determine whether to invoke substantive or procedural unconscionability as in other areas of the law. Further, courts should refrain from superficially categorizing plaintiffs in vaporware cases as 'commercial entities,' or as individuals with a 'college education,' or with some computer background, and should scrutinize each party's relative bargaining power and relative computer expertise.

Finally, it is submitted that the judiciary should be more amenable to a computer tort claim, and adopt computer malpractice as a viable cause of action. This new tort will require the judiciary to carefully analyze the facts of each transaction and resist the temptation of cursorily classifying the parties into general categories. This increased potential liability will not stifle computer research and development. Rather, increased judicial sensitivity in the area of computer sales will remove some of the fear and resentment that purchasers have toward computers and thereby promote computer sales.

FN1. The term 'computer hardware' describes the physical computer equipment. Typically, the hardware comprising a 'personal computer system' consists of a 'central processing unit'--the main body of the computer housing the processing circuitry and disk drives--, a video display monitor, and a printer. See Note, Copyright Infringement of Computer Programs: A Modification of the Substantial Similarity Test, 68 MINN. L. REV. 1264, 1264 n.1 (1984); Management Sys. Assoc. v. McDonnell Douglas Corp., 762 F.2d 1161, 1163 n.2 (4th Cir. 1985). The personal computer system is also referred to as a 'microcomputer,' because it is sufficiently compact to fit on top of a desk.

Some additional types of computer systems are: (1) 'laptops,' which are portable and light enough to fit on the user's lap; (2) 'minicomputers,' which are somewhat larger, faster, and have considerably more storage capacity than microcomputers; and (3) 'mainframes,' which are faster and have more storage capacity than minicomputers, and which are so large that they sometimes occupy entire rooms. Further, some computers are not readily recognizable as such; some computers are merely 'black boxes' which accompany, or are built into, high technology equipment such as industrial robots, CAT scanners, and electronic fuel injection systems.

FN2. Computer 'software' essentially is that intangible part of a computer system which is not hardware. See Management Sys. Assoc., Inc. v. McDonnell Douglas Corp., 762 F.2d 1161, 113 n.2 (4th Cir. 1985); Bender, Software Protection: The 1985 Perspective, 7 W. NEW ENG. L. REV. 405, 407 (1985); Note, supra note 1, at 1264 n.1.

Software comprises at lest two classes of subject matter: computer programs, which are the operating instructions communicated to the computer by the user-- for example, word processing and spread sheet programs, games, telecommunications packages, and many others--, and data bases which are computer-readable representations of information--for example, customer lists, written documents and stored graphics. See Telex Corp. v. IBM, 367 F. Supp. 258, 274 (N. D. Okla. 1973); Bender, supra at 407.

The Copyright Act refers to a computer program as 'a set of statements or instructions to be used directly or indirectly in a computer in order to bring about a certain result.' 17 U.S.C. § 101 (1982).

FN3. The multitude and complexity of problems encountered by members of the computer industry are analogous to the problems encountered by members of other fast-paced businesses and professions, such as commodities trading and some areas of the medical profession. Consequently, the computer industry 'burns out' its members within a relatively short period of time. See Burnout: Is This Fast-Track Market Melting Down Its Talent Pool?, Computer & Software News, Nov. 9, 1987, at 139 [hereinafter Burnout].

FN4. Computer purchasers generally become dissatisfied with their systems when the hardware or software is 'dead on arrival' (DOA) that is, completely non- functional due to a manufacturing or design defect, or where the hardware or software does not accomplish all of the tasks the salesperson represented that it would, or some combination of the above. At one point during the infancy of the computer industry, some experts estimated that as many as forty percent of all systems failed. Chatlos Sys. v. National Cash Register Corp., 670 F.2d 1304, 1307 n.1 (3d Cir. 1982) (Rosenn, J., dissenting).

Although most computer manufacturers, distributors and retailers attempt to resolve problems encountered by their customers or settle litigation prior to trial, many cases have indeed gone to trial. See Graphic Sales, Inc. v. Sperry Corp., 824 F.2d 576 (7th Cir. 1987) (lessee denied recovery against manufacturer under fraud theory); Hunter v. Texas Instruments, Inc., 798 F.2d 299 (8th Cir. 1986) (buyer denied recovery under breach of express and implied warranties claims, because, under Arkansas law, manufacturer's warranty disclaimer was neither inconspicuous nor unconscionable); RRX Indus., Inc. v. LabCon, Inc., 772 F.2d 543 (9th Cir. 1985) (buyer recovered consequential damages from software seller for breach of contract; software is 'good' under U.C.C.); Consolidated Data Terminals v. Applied Digital Data Sys., 708 F.2d 385 (9th Cir. 1983) (distributor recovered consequential damages from manufacturer for breach of express warranty); Convoy Co. v. Sperry Rand Corp., 672 F.2d 781 (9th Cir. 1982) (lessee recovered lease payments, costs of employees' additional labor, plus interest from manufacturer for breach of contract); Dunn Appraisal Co. v. Honeywell Information Sys., Inc., 687 F.2d 877 (6th Cir. 1982) (lessee recovered, for breach of contract and fraud, labor and costs of materials for converting data to be used on manufacturer's defective system); Glovatorium, Inc. v. National Cash Register Corp., 684 F.2d 658 (9th Cir. 1982) (buyer recovered compensatory and punitive damages from manufacture under fraud theory); Iten Leasing Co. v. Burroughs Corp., 684 F.2d 573 (8th Cir 1982) (where nonvital part of computer fails, buyer entitled only to out-of-pocket expenses, not revocation of acceptance); Earman Oil Co. v. Burroughs Corp., 625 F.2d 1291 (5th Cir. 1980) (lessee denied recovery under misrepresentation, breach of contract and breach of warranty claims where contract limited liability and disclaimed warranties in conscionable manner); Tilden Fin. Corp. v. Palo Tire Serv., 596 F.2d 604 (3d Cir. 1979) (summary judgment for lessor); Triangle Underwriters, Inc. v. Honeywell, Inc., 604 F.2d 737 (2d Cir. 1979), aff'd after remand, 651 F.2d 132 (2d Cir. 1981) (summary judgment for manufacturer precluded by fraud claim); Clayton Brokerage Co. v. Teleswitcher Corp., 555 F.2d 1349 (8th Cir.) (lessee recovered damages for fraud), aff'd, 562 F.2d 1137 (8th Cir. 1977) (en banc); United States v. Wegematic Corp., 360 F.2d 674 (2d Cir. 1966) (computer engineering difficulty not excuse for breach of contract); Sperry Rand Corp. v. Industrial Supply Corp., 337 F.2d 363 (5th Cir. 1964) (buyer granted rescission and damages for breach of implied warranty); Analysts Int'l Corp. v. Recycled Paper Prods., Inc., No. 85-C-8637 (N. D. Ill. June 19, 1987) (denied seller's motion to dismiss buyer's counterclaim of deceptive trade practices); Omni-Circuits, Inc. v. DRP, Inc., No. 85-C-9081 (N.D. Ill. Feb. 23, 1987) (implied warranty of fitness disclaimer challenged as