Mandatory Software Warranties for Everyone

Software and warranties go together like water and oil: Read the license for any application and you’re bound to find wording that virtually eliminates any legal responsibility that the vendor might have toward the customer. But that may be changing in a big way through a legal backdoor if Mark Radcliffe is right. According to the software licensing expert and partner with global law firm DLA Piper, a report from the influential American Law Institute (ALI) could convince judges that a number of practices which are virtually unheard of in the software industry are, in fact, settled case law and standard practice.

I spoke with Radcliffe earlier this month about a recent ALI publication called the Principles of the Law of Software Contracts. In general, the ALI publishes a Principles report to give a summary of case law and provide best practices in a given legal area. “The ALI itself is very well known for this work,” he says. “They’re very authoritative, too. Restatements by the ALI are almost at the level of other court decisions.” Because the U.S. has operates under a common law system, judges are expected to interpret statutes and they look for keys to better understand the implications of their decisions.

According to Radcliffe, though, the problem in the Principles covering software contracts is that even after decades of existence, licensing is far from being settled law. “There still remain a number of issues that are open from a legal point of view, like contract formation, where there is no consensus,” he says. Furthermore, the law governing software licenses “is a little bit of a hodgepodge.” Copyright statutes are part, but then so is Article 2 of the Uniform Commercial Code, a body of law created in the 1950s. “Article 2 is aimed at discrete transactions,” says Radcliffe. “You sell the nuclear reactor or the car and that’s it. But any time you license software, it’s an ongoing relationship.”

According to Radcliffe, the two law school professors who ran the project went beyond a summary of law and best practices “and described policies … that they think are a good idea.” The professors “tried to justify” the report with case law, but in ways that weren’t accurate. “And unfortunately that kind of affected the entire work and made it highly undesirable and, frankly, quite dangerous.” Here are some of the problems he sees:

• Software typically ships without warranties, because the vendor disclaims them as it can under the UCC. But the Principles suggest a “warranty of no hidden material defects.” That leaves a big question as to what material or hidden might mean, particularly when you think of how rough some dot oh versions are. Could a customer argue that a serious bug “should” have been detected and corrected? Who knows?
• The professors said that the warranty is so important that a company cannot disclaim it, which would fly in the face of decades of precedence and practice.
• According to Radcliffe, this approach would also disallow any limitations on liability, including losses a company or individual incurred by relying on the operation of the software.
• Privity, a principle under which your obligations extend only to the person with whom you directly deal, would go out the window. If a vendor uses tiered distribution, in which it sells to a distributor or reseller which, in turn, sells to the customer, it would suddenly be directly responsible to the customer, even though it has no relationship with the party. What if the reseller or distributor has incorrectly configured or installed the software? The vendor might still be held liable.

Radcliffe says that this “slipped under the radar” of most software attorneys: “When I go to senior people in software licensing and describe the results, there’s a look of horror on their face. First they say that’s not the law, and then they say where did that come from?”

There’s enough industry concern about this that Microsoft and the Linux Foundation cooperated on an open letter addressing the topic, including concerns about how it might be implemented. Although there is an exclusion for “free” software, that might not apply to many open source projects, particularly if someone pays for the distribution, and yet, paradoxically, might apply to software for which someone doesn’t pay a fee but for which the vendor gets revenue from advertising.

The concern among software vendors and IP attorneys is that once the principles are generally released, they could become embedded in the legal fabric, with judges who are not specialists in software law relying on the interpretations and suggestions. Radcliffe thinks that the result will be software vendors having to settle many cases and software prices increasing as a direct result.

There is also an interesting additional problem. Given the wide number of products that use microprocessors and firmware, there are many other industries that could find themselves subject to software warranties. Can you imagine an auto manufacturer having to issue a recall on cars because of a software glitch that it thinks opens the door to legal vulnerability?

Image via stock.xchng user lauralucia, site standard license.