Our client PCBus is in the business of assembling computer hardware. Its marketing strategy focuses on a market called SOHO (small businesses operating out of the owners1 homes). To distinguish its product from the many others on the market, PCBus combines its hardware with software particularly well-designed for this market. One of the software products that its customers began to ask for frequently but which was not included in its software 3package2 was software that could be used to create marketing materials which could be printed, placed on CD-ROM or published as part of an internet web site. As PCBus researched the potential sources for such a software product for inclusion in its bundle of software, it came across a new company with a new product. The company was named TransPub and its product was called Cyberguten.
The two companies entered into a negotiation which they both hoped would lead to an agreement by PCBus to include Cyberguten as one of its bundle of software products included with each computer sale. A significant barrier in the negotiation was the insistence of TransPub that it be paid $200 per computer sold. This reflected the price it received from retailers for Cyberguten. After months of discussion, TransPub proposed that it would produce a 3light2 version of Cyberguten which would provide users with less than the full array of functions contained in the full version of Cyberguten. PCBus would pay to TransPub $100 per computer sold by PCBus and the computer would be accompanied by 3Cyberguten Light2 and a certificate stating that the purchaser of the computer could acquire, by paying $100 to TransPub, a copy of the complete (full version) Cyberguten. During the negotiations, representatives of TransPub told PCBus that TransPub was at an early stage of development of a significantly new version of Cyberguten and would want to renegotiate any license agreement it reached with PCBus when TransPub completed this new version of Cyberguten.
The parties then signed the following statement :
It is agreed by PCBus and TransPub that PCBus will bundle Cyberguten Light with each computer it sells and that PCBus will pay to TransPub $100 per computer sold. It is understood that TransPub will supply to PCBus a certificate to be included with each computer which will state that the purchaser of the computer can purchase from TransPub a full version of Cyberguten for $100.
From the point of view of PCBus and TransPub, this arrangement proved satisfactory for the first 7 months after the agreement was reached. By that time, however, TransPub had developed a new version of Cyberguten which added important functions to the software but which required more powerful computer hardware than that currently assembled by PCBus. Furthermore, the market for this new version of Cyberguten permitted TransPub to double its wholesale price for the software from $200 to $400 per copy. It is TransPub1s position that this new version of its software has entirely replaced the first version of Cyberguten and it no longer provides any technical support for users of the older version. Owners of Cyberguten Light can buy the new version for $300 and owners of the older version of Cyberguten can buy the new version for $200. There will no longer by any 3Light2 version of Cyberguten.
TransPub notified PCBus that it would no longer permit Cyberguten Light to be bundled with PCBus computers. PCBus is concerned about adverse consequences to its sales if it is unable to continue bundling Cyberguten Light with its computers. It estimates a loss of 25% of its sales (amounting to a lost profit of about $75,000 per year) if it is unable to continue to include some form of Cyberguten with its computers. TransPub has said that if PCBus will make the necessary alterations in its computers so that the computers will be able to use the new version of Cyberguten, PCBus can continue to bundle Cyberguten, but it will be the new full version of the software at a cost to PCBus of $300 per computer sold. Your client PCBus is concerned that the combined cost of the additional hardware plus the higher license fee it would have to pay TransPub would make it difficult for PCBus to continue its current levels of sales while still making a profit. It does not believe it will be able to increase its prices sufficiently to pass on its additional costs to its customers without experiencing a sharp decline in sales.
Please analyze the legal relationship between your client PCBus and TransPub, including in your discussion the arguments that you would make for PCBus in its efforts to continue the profitable arrangement it had made with TransPub and the arguments you would expect from TransPub in response. What remedy would be available to PCBus if a court found TransPub to be in breach of contract? You should assume that this software licensing arrangement is not within the Uniform Commercial Code.
Your client, Atlas Tire, is in the business of selling tires to automobile service stations. In the Fall of 1996, Atlas sent the following fax to twelve of its largest customers.
Would you like to make a better deal on tires than you have enjoyed in the past? Take advantage of this offer. In exchange for your promise to purchase for two years at least 100 tires every month for an average price of not less than $30 per tire, we will guarantee you that our prices will be at least 10% below the price you could buy the tires for from any other wholesaler of tires. JMSS, one of the twelve automobile service stations receiving this fax, faxed back the following response:
You are asking for quite a large commitment for just a 10% discount. How about a 12% discount? Maybe that would seem more attractive to you if I promised a minimum purchase of 125 tires a month.
JMSS, assuming that its suggestion would be refused, but pleased with the 10% discount deal that Atlas Tire had offered, immediately placed advertisements in local papers announcing a tire sale at prices which, in the view of JMSS, would still be profitable at the 10% discount price being offered to it by Atlas Tire.
Atlas Tire received back six responses from other service station owners accepting the arrangement it proposed. In response to JMSS, Atlas left the following voice message on JMSS1s answering machine:
A lot of other dealers thought we made a fair offer.
After listening to the message on its answering machine, JMSS immediately sent a letter to Atlas stating:
Thank you for your offer. We accept and would like to place an immediate order for 150 of your $50 tires at the 10% discount and agree to purchase at least 100 tires per month for the next two years.
Before receiving this letter, but after it was mailed, Atlas sent another fax to all those service stations, including JMSS, which had received the first fax and had not responded affirmatively to the offer it contained:
We appreciate your having considered our offer. Because of the large affirmative response to it, we are no longer able to continue the offer. We look forward to maintaining with you the cordial business relationship we have enjoyed for many years.
JMSS' lawyer called the president of Atlas this morning stating that his client, JMSS, would insist that the 10% discount arrangement be honored by Atlas. Please provide an analysis for Atlas of the possible grounds for such a demand and provide such responses as you think are appropriate. The arrangement clearly involved a sale of goods and therefore the UCC will be applicable. In areas where the UCC has no relevant provision, courts will apply the common law.
When the bids were opened, GC1s bid was $1,000,000 lower than the nearest other bid. Delighted, the developer, at 11:15 am, accepted GC1s bid and informed the other bidders that the bid had gone to GC. At about the same time, GC1s President was told by a staff member who had just listened to the answering machine tape about the subcontractor1s message on the answering machine. At 11:30 am the President of GC made two urgent telephone calls. First , the President of GC called the steel subcontractor. The steel subcontractor stated that it would only perform the contract at the corrected price left on the answering machine message. Then the President of GC called the developer. The President of GC told the developer of the error. The developer promised to consider the problem created for GC, but pointed out that it believed that GC was now bound to honor its contract with the developer to build the hotel for $25,000,000. The developer has now delivered to GC for its signature a contract which reflects GC1s $25,000,000 bid.
GC has located another general contractor, NewCon, which is prepared to accept an assignment of this construction contract. NewCon has offered $50,000 to GC in exchange for this assignment. It appears that NewCon did not bid on this contract because of an outstanding dispute with the developer arising out of an earlier construction contract.
GC wants your opinion of its rights and liabilities in connection with its bid. It wonders whether it can insist that the steel subcontractor honor the bid that GC used in its calculation of the bid. It wonders whether it would be better off not engaging in a dispute with the developer since it has this alternative arrangement it can make with NewCon. In advising GC, please be sure to anticipate the arguments which will be advanced by the steel subcontractor and by the developer.