I. THE CONVENTION SUBSTANTIVELY GOVERNS THE TRANSACTION UNDER THE SALES AND LICENSING AGREEMENT.

Claimant submits that the transaction under the Sales and Licensing Agreement (hereinafter Agreement) falls within the scope of Article 3 of the United Nations Convention for the International Sale of Goods (hereinafter Convention). In this regard, Claimant submits that Firstly, the Convention is competent to cover transactions involving software [1.1];Secondly, the nature of a ‘sales contract’ as intended by the convention allows for such transaction [1.2]; and thirdly, the Agreement is not a license, but one that constitutes a valid sale of goods [1.3].

I.1. The Convention covers transactions involving the sale of software.

Claimant submits that a uniform interpretation accorded to case law leads to the conclusion that software constitutes ‘goods’ under Art. 1 of the Convention [1.1.1]; and regardless of its properties, software as envisaged by the Agreement will fall within the ambit of Art. 1 of the Convention [1.1.2]. Alternatively, the software and the equipment delivered under the Agreement form a composite entity and hence, comes within the scope of the Convention [1.1.3].

I.1.1.‘Software’, in the context of the Agreement is a tangible good.

The Convention only concerns contracts which involve a ‘sale of goods’. While the term ‘goods’ has not been defined within the Convention, an autonomous interpretation needs to be accorded to it [Art. 7(1)]. There is general consensus that tangibility and mobility are the major characteristics of ‘goods/merchandises’ under the authoritative texts of the Convention.

A contract for the sale of software cannot envisage a situation wherein the data is separated from its medium (be it the storage device of the computer or a disc). The software covered under the Agreement was

partly installed by CLAIMANT on the computer systems present in the room, while the other part was downloaded on the computer. This process of delivery does not affect the nature of the good in any way, as it still takes a corporeal form at the time of delivery.

Consequently, the nature of the transaction under the Agreement will fall within the scope of the Convention.

I.1.2.Software does not fall under the exceptions found within the Convention.

The interpretation accorded to the term ‘goods’ under Art. 1 should be one that widens its ambit so as to cover all transactions of sale, unless the goods involved are incorporeal. Such interpretation should also be in consonance with the underlying principles of the Convention [Art. 7(2)]. Software is in keeping with the underlying principles of the Convention.

Any item that is the object of a commercial transaction; and that is not explicitly excluded from the scope of the Convention can form the subject matter of a Sales Contract. The nature of the exclusion of ‘goods’ under Art. 1 should be read in light of the specific exclusion given in Art. 2(f), namely, electricity. This exclusion gives a clear picture of the incorporeal nature of goods which are to be excluded from the scope of the Convention. No form of commercial software can exist without a physical medium.

This would therefore reaffirm CLAIMANT’S argument that the Agreement is a contract for the sale of goods under the Convention.

I.1.3.The software forms an essential part of the physical equipment delivered under the Agreement.

The nature of the software under the Agreement is such that, it is essential to operate the hardware delivered under the same transaction. The accuracy of the beam is the defining factor of the active scanning technology. Transactions involving such software automatically treat the software as an essential part of the hardware. The same rights accorded

against the physical equipment under the Convention will automatically vest with the parties, in relation to the software.

CLAIMANT states that, software downloaded onto a computer forms ‘goods’ under the Convention. Alternatively, CLAIMANT argues that, in cases where the software is essential for the subject of the contract to function, the Convention will extend to it.

I.2. The Agreement is a ‘sales contract’ as under the Convention.

The Convention covers all contracts which involve the manufacture and supply of goods, as long as the buyer has not contributed a substantial amount to this process. CLAIMANT states that RESPONDENT has not contributed substantially to the creation of the software under the Agreement [1.2.1]. Neither would the preponderant part of CLAIMANT’S obligations under the Agreement constitute a service so as to exclude the applicability of the Convention [1.2.2]. Finally, permanent licensing Agreements can come within the scope of the Convention [1.2.3].

I.2.1.There is no substantial contribution by RESPONDENT to the creation of the software.

The Convention does not concern itself with Agreements wherein the majority of the buyer’s obligations towards the creation of the good vest with the buyer himself [Art. 3(2)]. Mere technical specifications do not count as a substantial contribution by a buyer for the creation of the good. RESPONDENT has itself noted that the software is in its final stage of development. Moreover, the medical data is used only to fine tune the software provided by the CLAIMANT. This indicates that any contribution made by the RESPONDENT is only after the creation of CLAIMANT’S product.

Alternately, irrespective of the nature of RESPONDENT’S contribution under the Agreement, CLAIMANT states that its value is not substantial. The contribution of the buyer is in not in any way higher than that of the CLAIMANT. Therefore, the substantial obligations under the Agreement were performed by CLAIMANT, thus bringing it within the confines of the Convention.

I.2.2.The Agreement is one for sale and not service.

The Convention does not exclude contracts for customized software from within its scope. Such contracts are subject to Art. 3(2) of the Convention. The economical value test is used above the essentiality test for determining the criterion for the ‘substantial’ test under Art. 3(2). CLAIMANT states that, the application of the economical test leads to the result that the Agreement is a contract for the supply of goods [1.2.2.1]. Alternatively, the ‘essentiality’ tests leads to the same conclusion [1.2.2.2].

I.2.2.1. As per the application of the ‘economic’ test, services do not constitute the preponderant part of CLAIMANT’s obligations under the Agreement

The components other than the delivery of the equipment; and the software necessary to operate the same include firstly, installation and testing of the software; and secondly, training the Respondent’s personnel to handle the active scanning technology. The monetary weight accorded to each of these components is 1.25M; and 0.95M respectively. This could indicate that the economical value of the service component of the Agreement is USD 2.2 Million.

The value of the intellectual efforts put into the software will enhance the value of the good itself. Claimant states that such effort amounts to USD 3.5 Million. It is further stated that the value of the physical equipment delivered under the Agreement is USD 3.8 Million. This brings the total value of the goods under the Agreement to USD 7.3 Million. This is a

clear indication that the value of the goods outweighs that of the services, thus rendering the Agreement a contract for the sale of goods.

I.2.2.2. Alternately, the application of the ‘essentiality’ test also leads to the conclusion that the preponderant part of the Agreement does not constitute a contract of service.

The main object of the Agreement is the sale of the active scanning technology, which also includes the software used to control it. In such instances, the ancillary service obligations do not exclude applicability of the Convention under Art. 3(2). In a mixed contract, the intention of the parties is used to determine whether a certain obligation forms the preponderant obligation under that contract. The essentiality of an obligation may be determined through firstly, the substance of the agreement; or secondly, the parties’ intention as expressed through the communications.CLAIMANT states that the substance of the Agreement is with regard to the production of the software. Obligations under the Agreement such as training of staff and testing and installation of software are merely ancillary. The software had already reached its final stages of development. The data to be provided by the Respondent was only to assist in fine-tuning the software.CLAIMANT states that, RESPONDENT’S specifications were not tantamount to the creation of the technology, thereby, rendering them ancillary. Further, the value of the sale of goods under the Agreement far outweighs the services provided for under the Agreement. Therefore, upon withstanding the scrutiny of Art. 3, the Agreement is within the scope of the Convention.

I.3. Permanent licensing agreements are within the scope of the Convention

An agreement may be termed a licensing agreement, but this does not affect the interpretation of the substance of the contract. Transactions involving a permanent transfer of the right to usage are, substantially, contracts for sale.

The substance of the contract can be determined through the wording of the Agreement. The Agreement envisages a transfer of the permanent right of usage of software to Respondent. Moreover, the parties are referred to as the ‘seller’ or the ‘buyer’ under the Agreement. These factors give a clear indication that the Agreement concerns the sale of the permanent right to usage of the software, within the ambit of the Convention.II. THE JULY 2011 VERSION OF THE STANDARD TERMS HAVE BEEN

VALIDLY INCORPORATED INTO THE CONTRACT

The Convention will automatically apply to the Agreement between the parties upon the satisfaction of two preconditions. Firstly, the contract must be one for the sale of goods; and secondly, both parties should have places of business from different Contracting States [Art. 1(1)(a) CISG]. Such application of the Convention, however, can be excluded through an agreement between the parties [Art. 6 CISG]. The exclusion of the application of the Convention can also be implicit. The Claimant states that the choice-of-law clause in the Framework and Sale Agreement does not amount to an implicit exclusion of the Convention.Since the FSA extends to future contracts only upon their conclusion and cannot govern prior acts, an old choice-of-law clause cannot be read into the Agreement prior to its conclusion. Therefore, domestic Mediterranean law cannot be used to determine validity of the incorporation of the 2011 Standard Terms.CLAIMANT further states that the Convention is also equipped to govern the issue of inclusion of standard terms within a contract. The question of validity of the incorporation of the 2011 Standard Terms is determined by the provisions of the CISG relating to contract formation and interpretation.In this context, CLAIMANT states that it has validly informed RESPONDENT of the incorporation of the 2011 Standard terms [2.1], which, RESPONDENT has accepted through its conduct [2.2].

II.1. CLAIMANT has discharged its obligation of notifying Respondent of the changes in its Standard Terms.

CLAIMANT has sufficiently notified RESPONDENT of the regular change in its Standard Terms [2.1.1]. Further, RESPONDENT had reasonable opportunity to make itself aware of the content of these terms [2.1.2].

II.1.1. Claimant has sufficiently notified respondent of the new Standard Terms

CLAIMANT’S letter of 5 July 2011 was in the form of a counter-offer to RESPONDENT'S offer to purchase the active scanning technology. This counter-offer contains an additional notification of the inclusion of Claimant’s 2011 Standard Terms and the acceptance of the same indicates Respondent’s intent to subject the Agreement to its 2011 Standard Terms.

This intention to subject a contract to a party’s standard terms has to be determined through the eyes of a reasonable person in the same circumstances [Art.8(2) CISG]. A prerequisite in this context is a clear reference to the contract in concern, being subject to the standard terms, in a communication made to the other party.

CLAIMANT has given sufficient indication of its intention to incorporate the 2011 Standard Terms through its letter of 5th July 2011, in which the Respondent was duly notified of such an incorporation to all contracts concluded after 30 June 2011. The reference to such terms in the letter was clear and unambiguous. Additionally, standard terms can be validly incorporated even if their inclusion is implicit from the negotiations between the parties. CLAIMANT informed RESPONDENT about the regular overhaul of its standard terms during the negotiations leading up to the SLA. RESPONDENT also enquired about the content and changes with respect to the new standard terms, indicating knowledge that CLAIMANT desired to use the 2011 Standard Terms in the SLA.

The conduct of CLAIMANT pointed to its intention to include the new Standard Terms as part of the SLA, when interpreted according to the understanding of a reasonable person in RESPONDENT'S position [Art. 8(2)].

II.1.2. RESPONDENT had reasonable opportunity to take note of the 2011 Standard Terms

II.1.2.1. Website

The reference to the website of CLAIMANT in the letter of 5th July 2011 was enough for RESPONDENT to take notice of the contents of the terms. The internet is an accepted medium for the publication of standard terms (provided a reference has been made to their existence in the internet) due to its widespread presence and capability.

A reference directing the offeree to the offeror’s website, in order to access the terms, is sufficient to enable the receiving party to become aware of the terms. Moreover, the provision of a direct link in this regard further substantiates such a reference. The terms must be accessible on the website at the time of contracting.

In its letter of 5th July 2011, CLAIMANT informed RESPONDENT that the 2011 Standard Terms were on its website in Mediterranean, along with a link to the same. Moreover, along with a banner regarding the due availability of the English translation, a phone number in case of any queries was provided. This provided opportunity to clarify the meaning of the Mediterraean version of the 2011 Standard Terms.Through the letter and the information present on the website, Claimant discharged its burden of informing the Respondent of the new terms. Furthermore, the latter had the opportunity to take note of the contents of the 2011 standard terms.

II.1.2.2. Language

CLAIMANT allowed RESPONDENT opportunity to take notice of the content of the 2011 Standard Terms. Subsequently, the burden of proving that the language of the standard terms was an impediment is on RESPONDENT.

The risk of a communication in a foreign language is to be borne by the party accepting it, especially in cases where the party is experienced in commercial matters. Whether the offeree could be expected to translate the terms would depend on the length, intensity and importance of the business relationship. Transactions which involve high economic gains are important enough to expect that the party receiving the standard terms in a different language would ask for a translation or procure a translation himself.

RESPONDENT concluded a contract of an extremely technical nature with CLAIMANT [Cl. Ex. 6]. The contract was similar in nature, to one concluded earlier between the same parties. Both the contracts were valued at high rates and the technology forming the substance matter of the relationship was novel in nature. In such a scenario, CLAIMANT expected RESPONDENT to ask for a translation or procure it on its own. In the absence of the clarification by RESPONDENT, CLAIMANT reasonably assumed that the former had taken note of and understood the content of the terms [Art. 8(2) CISG].

The purpose of the requirement of referring to standard terms if a party intends to use them in the contract is to ensure that the other party is protected from being bound to conditions which it is not aware of. Such a problem of non-awareness would not apply if one of the employees of the party receiving the terms in a foreign language has a good command over it.

One of the negotiators on the Respondent’s team had a good command over Mediterranean, so much so that it enabled him to communicate with Claimant’s technicians on technical matters. It was reasonable for CLAIMANT to have assumed that RESPONDENT would use the services of this young doctor, in the translation process, especially given the importance and economic value of the transaction.

RESPONDENT should have either asked for a translation or not accepted the contract along with the new standard terms. The fact that both were

done lead to the presumption that it was aware of the content of the terms.

II.2. Non-objection and performance of contract by respondent amounted to an implied acceptance of the 2011 Standard Terms

RESPONDENT had a chance, both before and after the conclusion of the SLA, to clarify the standard terms or refuse to perform the contract, in case of an objection with the terms. Since it did not do either of these, CLAIMANT had the right to assume that it accepted the contract on the lines of CLAIMANT'S terms.

The party that wishes to incorporate its standard terms reasonably assumes, within the meaning of Art. 8(2) CISG that the offeree intends to accept the offer, either after understanding its terms or irrespective of its content. The language of the terms are irrelevant in so far as the addressee has not taken initiative to obtain the terms or object to them.

RESPONDENT was informed about the incorporation of the 2011 Standard Terms in the course of the negotiations regarding the SLA and through CLAIMANT'S letter on 5th July 2011. The former did not enquire about the content of the terms nor did it refuse to incorporate the terms into the SLA at any point of time. Despite the terms not being made available in accordance with a promise to do so by Dr. Vis, Respondent did not seek a translation. In such circumstances, it was reasonable for CLAIMANT to have understood this to mean that RESPONDENT was aware of the terms and subsequently accepted the contract.

Once it knows that standard terms apply, performance becomes an integral part of conduct of a party in order to indicate acceptance. The performance of the contract after the receipt of standard terms leads the other party to believe that there has been an acceptance through subsequent conduct [Art. 8(3) CISG].

RESPONDENT signed the written document of the SLA. This indicated acceptance to the new terms, since there was a clear reference to them

in the SLA itself. Moreover, by paying the initial instalment price for the goods under the SLA, RESPONDENT, through its subsequent conduct, performed its obligation under the contract [Art 3(2)] and indicated acceptance. The formation of the SLA was on 20th July 2011, and the English terms became available on the website by 30th July 2011, when one of the doctors of Respondent checked the same. Even after checking the terms in English, RESPONDENT did not think to say anything to CLAIMANT regarding them, but chose to raise the issue much later after performance under the SLA had taken place.

CLAIMANT naturally assumed that the subsequent conduct of RESPONDENT in this regard was an implied acceptance of the 2011 Standard Terms.