Thursday, February 2, 2012

Software Warranties:

Just like the purchase of products you have the issue of when the warranty starts and how long the warranty period will be. Normally you would not want the warranty to commence until acceptance and testing has been completed so that you are not losing time from your warranty during the period when you aren’t able to use the software. When the warranty starts and the duration of the warranty are both cost issues.If the cost of maintenance is fifteen percent of the license fee, each month that the warranty is reduced costs you 1.25% of the license cost as it will force you to purchase maintenance that much sooner.

What are the responsibilities to correct minor errors versus material errors? In any license you need to define what constitutes a material error in the software that the licensor must correct.
Similar to a product you also want to include a period that the licensor has in which to correct those material errors that are affecting your being able to use the product. Failing to correct those errors within the allowed period should be a breach of the license agreement and provide you with normal remedies such as potential termination of the license, damages, etc.

Are you relying on the software product to be fit for a particular purpose? Does the specification define that purpose? Many standard software licenses may disclaim the implied warranties of merchantability and fitness for a particular purpose. If you are relying upon the licensor’s representations that the software will provide you what you need, make sure those representations are made part of the agreement or the specification clearly identifies all the things you need the software to do. If you don’t, once you have accepted the software your sole rights will be under warranty. That warranty is to correct material errors, not to make the software meet your needs. This means that if the software isn’t meeting your needs but it doesn’t contain a material error, you have no right to demand that it be fixed. One of the reasons why acceptance and testing is so important is to make sure that it does in fact meet your particular purpose. That way if it doesn’t you can reject the product and not wind up paying for something that doesn’t meet your needs.

Legal warranties

The most common legal warranties that get included in a software license agreement are:
1. The licensor has the right to enter the license agreement. This means that the individual signing the license agreement does in fact have the requisite authority to enter into the license agreement.
2. Sufficient rights in the licensed product to make the grants and commitments. This means that if any third party software is included in the licensor’s product, the licensor is making the warranty they have the necessary licenses with those third parties with the right to sublicense that to you.
3. Conform to the specifications when used unmodified. This expands upon the warranty to simply fix material errors and would require the supplier to either correct errors that are causing the program to not conform to the specifications or be subject to the breach of the warranty which would provide the licensee with the right to terminate and claim damages. It also highlights the need for the licensee to make sure that they have good specifications.
4. No security measures, restrictions or limitations have been incorporated. A software developer can write code where they could remotely disable the use of the program. As a licensor you want to be assured that the licensor does not have any of that code in their product. If the licensee breaches their obligations, the licensor still has their rights to terminate the license.
5. No harmful code. This warranty is more about forcing the licensor to manage their code and programmers to ensure that they are not including things within the code that could be harmful to the licensee. For example a Trojan Horse is code that could be used for data theft, installation of malware, downloading or deleting files, crashing a computer, viewing a users screen or logging keystrokes. All of these would be considered harmful code.

Some companies may also include restrictions against using open source code. Open source code is code that is made public under a General Public License. The risks associated with open source code depend upon how you will use the code. If you are using it in an application that you have licensed the primary risk is potential infringement with another party’s intellectual property rights. That risk can be managed through an intellectual property infringement indemnity. If you were licensing code to use within code that you were to write and license to others the risk is by using it, you could be making your code subject to the General Public License which means parties could get it without paying a license fee.

Warranty on services (such as maintenance). For any services that are purchased with the license you would include a normal services warranty such as use reasonable care and skill in performing the services
Warranty redemption rights and remedies. Similar to purchasing a product where you address warranty redemption rights and procedures, the same applies to software license. The primary responsibility of the licensor during warranty is to correct material errors in the software and correct any problems where the software is not complying with the specifications. As such you need to have a process to notify the licensor of problems. You may want to include an escalation process for major problems. You also want to establish a period by which the licensor needs to provide you with a correction or the error or a work around. Unlike products where you could potentially have another party repair or replace the product, with Software unless you had source code and were thoroughly familiar with the product where you could make the correction, there really isn’t a good warranty remedy if they fail to correct the error within the allowed time frame. What you do have is contract remedies for breach of the agreement. If correction is important, you want to make sure that the failure to correct a material defect within the allowable period constitutes a material breach of the license agreement.