As I have mentioned in an earlier blog, the American Law Institute (ALI) has approved the Principles of the Law of Software Contracts (the Principles). Although ALI continues to make minor changes to the Principles, they are unlikely to make significant changes. If you want to learn more about the Principles, you can listen to a recent webinar which is posted at https://cc.callinfo.com/play?id=e0wjcw. This post will summarize my earlier comments and provide recommendations.
The Principles seek to “clarify and unify the law of software transactions,” but they would introduce a number of new concepts which are overly prescriptive and inconsistent with existing law. Lawyers from DLA Piper and many other firms expressed concerns about the Principles over time and most recently requested that the approval be delayed to deal with these concerns, but the Principles were approved in May and most of these concerns were not addressed. Many experienced software industry lawyers have expressed concern that the Principles, if imposed by the courts, will introduce cost and uncertainty, limit flexibility for businesses and consumers and have a negative impact on the software industry in the United States. The concern about the Principles in the software industry has led to strange alliances in opposition: Microsoft Corporation and the Linux Foundation, ordinarily fierce competitors with radically different views of licensing, sent a joint letter to the ALI to express their concern about the provisions in the Principles and request a delay in their approval. http://www.slideshare.net/markradcliffe/microsoft-linux-foundation-letter1. The IT Privacy and eCommerce Committee of the Association of Corporate Counsel association also expressed concern. http://www.slideshare.net/markradcliffe/acc-itpec-letter-and-discussion-points-re-ali-principles-of-the-law-of-software-contracts-5-11-09x
Lawyers dealing with software licensing need to understand key aspects of the Principles so they can consider their application to software licenses, but more importantly so they can assist the industry in responding to the Principles. Without the benefit of a clear and cogent industry response to the Principles for his or her consideration, judges may assume incorrectly that the Principles appropriately define the law as it should be. The publication of a proposal for law reform should not be a substitute for the legislative process or have the effect of overriding established statutory authority. I am working a number of industry groups to respond to the Principles. To keep updated on these efforts, you can go to http://www.linuxfoundation.org/principlesofsoftwarecontracts.
The best example of the flaws in the Principles is the new “non disclaimable” warranty of no hidden material defects. This warranty provides that licensors are liable for “hidden” material defects if they are aware of them at the time of the transaction. Yet this warranty is not otherwise found in the case law and incorporates new and difficult concepts, such as “hidden” and “material.” In addition, the concept of a “non disclaimable” warranty is fundamentally inconsistent with the approach of the existing laws with both Article 2 and both federal and state consumer statutes. This warranty, if adopted, is likely to lead to significant litigation without any clear benefit to licensees.
In addition to responding on behalf of the industry, software licensors need to consider the possibility that courts will be influenced by the Principles. I recommend that licensors consider the implications of all the following on the license agreements that govern the distribution of their software products and services. (The final version can be ordered from ALI website, www.ali.org):
1. Read Chapter 3 of the Principles to understand the new approach to express warranties and implied warranties.
2. Determine if your licenses are in the category of “Standard Form Transfer of Generally Available Software,” which generally is meant to apply to retail type of licenses. The actual definition is “a transfer using a standard form of (1) a small number of copies of software to an end user or (2) the right to access software to a small number of end users if the software is generally available to the public under substantially the same standard terms” (Standard Form License) and ensure that you comply with the new obligations for Standard Form Licenses. The Principles set the standard as when a “reasonable” licensor would believe that the licensee intends to be bound. However, the Principles include a “safe harbor” to make such licenses enforceable, which requires the following:
a) make the Standard Form License available prior to the transfer of the software, preferably easily accessible from the home page,
b) ensure that the licensee has reasonable access to the Standard Form License prior to the payment (or completion of the transaction if no payment is received),
c) ensure that for electronic transactions, acknowledgement by the licensee at the end of the Standard Form License or adjacent to the Standard Form License or for Standard Form License attached to packaged software, the right to return the unopened package of the software within a reasonable period for a refund
d) permit the licensee to store and reproduce a copy of the Standard Form License if only available electronically.
Other obligations applying to Standard Form Licenses include:
a) ensuring that the Standard Form License are “reasonably comprehensible” (i.e. the terms can be understood by a reasonable person of average intelligence and education)
b) deleting any electronic disablement remedy
c) deleting any advance agreement to modifications and implement a procedure to ensure that the licensee has a method of acknowledgement of the modification.
You should also consider how to best implement these requirements in other sales situations, such as telephone sales.
3. Review disclaimers of implied warranties to ensure that they comply with the new standards imposed by the Principles (this issue is particularly important for the implied indemnity for intellectual property infringement which requires that the disclaimer be in a record, conspicuous and employ clear language)
4. Review advertising and packaging to ensure that it does not create an express warranty and review disclaimers and other remedies to ensure that they meet the new standards in the Principles
5. Ensure that any use of “automatic disablement” (the use of electronic means to disable or materially impair the functionality of the software) is not used in “standard form transfer of generally available software” or consumer contracts and, if used, complies the new obligations in the Principles
6. Maintain records of your license agreements and any modifications, particularly for Standard Form Licenses
7. Consider implementing a method of disclosing the “material” bugs to comply with the new “non disclaimable” warranty of no hidden material defects
8. Review the limitation of liabilities and remedies to meet the new requirements in Section 4.
1 Comment
RSS feed for comments on this post. TrackBack URL
Sorry, the comment form is closed at this time.
Software to pay…
Thank you for the information. On the other hand, you can use a software to deliver your products instead try to program by yourself. I think is better to focus in what you know to do. Regards, Albert….
Trackback by Software to pay — November 25, 2009 @ 3:13 am