## Facts

- OpenSite Technologies, Inc. (OpenSite) developed and distributed software, including auction-related software.
- Smart Online, Inc. (Smart Online) operated a website that would use software applications in its online business.
- In March 2000, Smart Online and OpenSite entered into an agreement allowing Smart Online to use OpenSite’s software on Smart Online’s website.
- The software at issue was prepackaged (OpenSite did not create it specifically in response to Smart Online’s particular requirements), though the transaction included implementation-related obligations typically associated with software deployment.
- After the relationship deteriorated, Smart Online sued OpenSite asserting contract-based claims framed under Article 2 of the Uniform Commercial Code (UCC), including warranty-type theories tied to the software’s alleged nonperformance.
- OpenSite moved to dismiss under North Carolina Rule of Civil Procedure 12(b)(6), arguing the agreement was a software “license” and/or services arrangement rather than a transaction in “goods” governed by Article 2.

## Issues

1. Whether Article 2 of the UCC can apply to a commercial agreement that licenses prepackaged software for use on the customer’s website.
2. Whether Smart Online’s UCC-based contract and warranty allegations were sufficiently pleaded to survive OpenSite’s Rule 12(b)(6) motion when the agreement also involved service-like obligations.

## Decision

- The court held that, as alleged, the transaction could be treated as a UCC Article 2 transaction in goods because it centered on obtaining and using prepackaged software.
- The court declined to treat the contract’s “license” terminology as dispositive; the legal characterization depended on the substance of what was exchanged.
- Applying the predominant-purpose framework used for mixed transactions, the court concluded that Smart Online’s allegations supported treating the software component as the main thrust of the deal at the pleading stage.
- The court therefore denied dismissal of the UCC-based claims (at least in substantial part), allowing Smart Online to proceed under Article 2 theories, including warranty-related claims.

## Legal Principles

- Prepackaged or “off-the-shelf” software supplied in a commercial transaction may be treated as “goods” for Article 2 purposes, even if the agreement is styled as a license.
- When a contract includes both product and service elements, courts often use a predominant-purpose test to decide whether Article 2 governs the dispute.
- Labels used by the parties (such as “license”) are not controlling if the allegations show the economic substance resembles a product transaction.
- On a Rule 12(b)(6) motion, the court accepts well-pleaded allegations as true and generally does not resolve fact-heavy questions about the relative weight of goods and services beyond what the pleadings support.

## Conclusion

Smart Online treated OpenSite’s motion to dismiss as turning on whether the parties’ prepackaged software arrangement could fall within UCC Article 2 despite being documented as a license and involving some service components; the North Carolina Business Court held Article 2 could apply on the pleaded facts and allowed Smart Online’s UCC contract and warranty-based claims to go forward past the pleading stage.


Smart Online, Inc. v. OpenSite Technologies, Inc., 2003 WL 21555316 (2003)