Cyberspace Evolving Business Law—Integrators Must Stand Ready - Uniform Commercial Code update - Government Activity

Computer Technology Review, Dec, 2000

Electronic commerce is affecting many ways of doing business. It is more and more common, with millions of transactions flashing across the nation. Readers who use e-commerce, who have made investments in dot-coms and take a security interest in property to guarantee payment would be well advised to consult their legal counsel.

Effective July 1 of next year, Article 9 of the Uniform Commercial Code (UCC) is being updated. Article 9 covers interests in personal property and fixtures taken by parties such as lenders to secure payment or other performance of an obligation.

The big question arose: How do you secure an interest in intangible property? The tangible assets of a dot-com are generally a computer program and a Web address.

The new Article 9 goes beyond the "goods-based" economy to embrace the "smart goods" based model. The new law modernizes the system of perfecting security interests, formulating clearer rules for enforcement of security interests, and setting forth new priority rules that make the laws more efficient and predictable. The new laws also modify the categories of collateral and create some new classifications.

By way of example, software is considered a computer program... an intangible type of property. However, software embedded in hardware is considered "goods" to which a security interest can be attached. Technology developments will create new classes of "smart goods" that will continue to challenge the definition of types of goods.

The greater challenge: when the most important assets of a business are the human ones: smart people. People aren't property. (Thankfully, this is settled law.) Questions are really going to rise. Good luck to the ABA section on Business Law, the arm of the legal community that will debate all of this. They will need it.