Question 1

(Suggested Time: One Hour; 40/120 points)

 

Henry Karlson was having car problems. For a while he ignored the facts that his car was losing a quart of oil every 1000 miles, was backfiring, and couldn't be driven without the car's hesitating and then jumping forward. But it got worse and worse and on April 8, 2002, he finally took it to a local mechanic for his diagnosis of what was wrong with the car. The mechanic, Lou Harst, told Henry that his engine was in serious trouble. According to Lou, the motor in Henry's car was suffering from failing valves, gaskets and a number of other things that Henry had never heard of. Lou Harst recommended the rebuilding or replacement of the engine. Henry felt a great deal of affection for this car, which he had owned for the last ten years and had driven 150,000 miles. He told Lou he didn't know much about cars and asked for a specific recommendation from Lou, which should include both how much it would cost and how long it would take. Lou said he would get back to Henry in a day or so.

The following day, on April 9, 2002, Lou called Henry. As far as Henry can recall, this is what Lou said during that conversation:

I'd replace that engine if I were you and I could do the job for $1500 and it would take me about two days. I could lend you a car to use if that would be necessary.

Henry didn't respond except to say thanks. The conversation ended at that moment because Henry's secretary signaled him that there was an important call on his other telephone line.

On April 16, 2002, Henry called Lou and said:

I have been giving your recommendation some thought and I might go along with it if the price were $1000 because, after all, the car isn't worth much more than $1000 on the used car market and I hate to spend more on the engine than the car is worth.

Lou said he would think it over, but that he was awfully busy with other jobs and if he couldn't make a profit on a job he wouldn't take it on. Nothing more was said during that conversation.

One week later, on April 23, 2002, Henry wrote the following letter to Lou:

Dear Lou,

Not having heard from you, I decided that I would take your advice and have you replace that engine in my car. Call me when you want me to bring the car in to your repair shop. I am enclosing my check for $1500 as my payment in advance for this work.

Henry

That afternoon, just after he mailed the letter to Lou, Henry received a telephone call from Lou in which Lou said:

Henry, I just can't do the job for the $1000 you said would be an acceptable price to you, so I guess that we are not going to get together on this. To tell you the truth, I wouldn't do the job for $1500 because there are no rebuilt engines for your model car available now at any price (although one was available when we first talked), and the price of a new engine is incredibly high.

On April 24 Henry received in the mail the check that he had sent Lou. There was no note in the envelope. Lou had obviously simply mailed Henry's check back to Henry. That was the last contact Henry had with Lou. After thinking over the situation, Henry came to see our law firm this past Monday, May 6, 2002, and asked for our advice. Henry wants to know whether he isn't right in thinking that Lou has a contractual obligation to him to put a new engine (not a rebuilt engine) into his car.

Please provide an analysis of Henry's rights against Lou and Lou's defenses to Henry's claims. In your analysis, please assume that under the law of this jurisdiction, the courts would treat this contract as a service contract, and not as a sale of goods.

 

Question 2

(Suggested Time: One Hour 15 minutes; 50/120 points)

 

Our client, Stu Blue, is the coach of the Catfish, a Springfield, Massachusetts swim team. Stu came to our office yesterday, May 8, and told us the following story. Two months ago, Stu believed that this year the Catfish might be one of the top ten swim teams in Massachusetts and therefore would participate in the statewide championship in June 2002.

Stu felt that if the Catfish were to be among the top ten teams and therefore participate in the championships, they should have new team uniforms. Stu had been somewhat embarrassed by the appearance of his team throughout the year. Although there is a team uniform, many members of the team failed to buy team uniforms this year. He decided that his team should all have appropriate swimsuits and warm-up jackets in the team's colors and with the team's logo. He called Swimwear International to discuss the matter. He told the agent for Swimwear that he thought the Catfish would in the top ten and would therefore participate in the statewide swim team championship. The Swimwear agent told Stu Blue that Swimwear International would provide the 100 members of the Catfish with warm-up jackets and swimsuits in the team colors and with the team logo for $6000. Of that amount, $2000 was for the swimsuits and $4000 was for the jackets. Stu was satisfied with that price but was not willing to make the purchase unless the team was invited to the championships. Stu said, "If we are in the top ten, I will purchase the jackets and swimsuits we talked about and I will pay you $6000. I would need them here in Springfield by May 10." The Swimwear International agent said, "OK."

The selection of the teams for the championship took place on Friday, April 5, and the Catfish were not invited to the championship. They were ranked twelfth in Massachusetts. Stu was disappointed. Then on Monday, April 8, Stu received a call stating that one of the teams in the championship had withdrawn; the league administrators decided that they would use a lottery to choose which team should replace it. The Catfish team had been selected. Stu accepted the opportunity to compete this coming June. He was not, however, willing to spend $6000 on team swimsuits and jackets under these circumstances. He thought that perhaps just new swimsuits in the team's colors and with the team's logo would be sufficient.

Stu immediately called Swimwear International to tell them that the team was not in the top ten, but that he would still be interested in buying 100 swimsuits; he said he would not buy the jackets. He also wanted to confirm the delivery date of Friday, May 10 for the swimsuits. The agent for Swimwear told Stu that he had just been about to call Stu to tell him that Swimwear could only deliver one-half of the order (swimsuits plus jackets) on May 10 and the other half on June 14. Stu said, "No, I don't want the jackets, and if you can deliver only half the swimsuits on May 10, I must have the rest of the swimsuits by May 31. The championships begin June 3." The agent for Swimwear said, "Well, we'll get half the order to you on May 10 and the other half by May 31, but your order is not just for swimsuits; your order is for swimsuits and warm-up jackets and the price we agreed on was $6000." Stu said, "No, we weren't in the top ten and I don't want the jackets." That was the end of the conversation. Then, last Friday, May 10, 50 swimsuits and jackets were delivered. They were in the team colors, but didn't have the team logo on them.

Stu spent the weekend worrying about his situation. On Monday he called around to other swimsuit dealers. The lowest price for the team swimsuits in the right colors and the right logo, if he needed delivery by May 31, would be $4000. The reason for the higher price, he was told, is that the factory would have to work overtime to produce them by May 31.

Then on Tuesday he received a letter from Swimwear International confirming their intention to deliver the other 50 swimsuits and warm-up jackets by May 31, and requesting payment of $3000 by Friday, May 17.

Please prepare an analysis of the legal issues confronting Stu Blue. Discuss the arguments you would present in his behalf both in his rights against Swimwear and his liability to Swimwear. What would you suggest Stu do, if anything, immediately. Please include the arguments you would expect to be made by attorneys representing Swimwear in their advocacy of the rights of their client.

 

Question 3

(Suggested Time: 45 minutes; 30/120 points)

 

In order to deliver video over the Internet, it is necessary first to translate the video into digital format. The digital file for even a short video is, however, very large; delivery of such a large file over the Internet would both take a great deal of time and would take up more space on the computer hard drive of the viewer of the video than the viewer would like (or perhaps even has available). The computer industry's solution to this problem is to create software programs that will compress the video before it is sent over the Internet and then to "decompress" the video when it is "played" by the person viewing it. The program that accomplishes this compression (at the server side) and decompression (at the user's side) is called a CODEC.

A company called Sorenson Video developed such a CODEC. Sorenson decided that they would sell the compression part of the software for $300 each to persons who wanted to compress video for delivery over the Internet. To interest buyers of that compression software, it would be necessary for the decompression software to be widely available. (No one will pay $300 for video compression software if there is no one who will be able to see the video.) This approach differed from others in the marketplace like Real Networks and Microsoft, who were themselves selling their compression software and then distributing, without charge, the decompression software required to see the compressed video.

Sorenson Video approached Apple Corporation with the following deal. Apple would license from Sorenson the Sorenson decompression software for a payment by Apple to Sorenson of $4.5 million. Apple would agree to include the Sorenson decompression software in its product "QuickTime," which it distributes without cost for both Macintosh and Windows computers.

During the negotiation of the deal, Apple and Sorenson agreed that Apple would be the exclusive distributor of the decompression software. Apple's representative in the negotiation told Sorenson Video that they were entering into this license agreement to give Apple a competitive advantage over others, like Microsoft and Real Networks, who are selling  "multimedia" computer products. The contract between Apple Corporation and Sorenson Video contained the following language:

It is agreed by the parties that Apple Corporation shall have the exclusive rights to the software subject to this license.

The contract contained a merger clause reciting that it was the final and exclusive statement of the agreement of the parties.

Sorenson has now licensed decompression software it calls "Spark" to Macromedia Corporation for inclusion in a new product marketed by Macromedia Corporation called FlashMX. Prior versions of Flash could not deliver video content. Flash was used solely to produce animations for delivery over the Internet, and Macromedia wished to add to Flash the ability to deliver video. Sorenson did not consult with Apple before entering this license agreement with Macromedia. When Apple learned of it and objected, Sorenson responded that the decompression software it had licensed to Macromedia was not identical to the decompression software that it licensed to Apple. On the other hand, Sorenson acknowledged that the decompression software it had licensed to Macromedia would allow the new version of Flash to deliver video over the Internet. From Apple's point of view, Flash, which had not previously competed with QuickTime in delivering video over the Internet, is now a direct competitor of QuickTime as a result of the Sorenson/Macromedia deal.

Apple Corporation has come to our firm and asked us to sue Sorenson for breach of the licensing agreement. While Apple is not prepared to estimate the economic harm to it as a result of the Sorenson/Macromedia deal, it believes strongly that the availability of video on the widely used Flash will adversely affect Apple's ability to advance its product QuickTime as a major actor in the Internet video market. Please provide the legal arguments that you believe Apple Corporation may make against Sorenson; include the legal arguments you would expect would be made by Sorenson's counsel in response to Apple's arguments. The law to be applied to software licensing agreements in this jurisdiction is Article 2 of the UCC.