Many businesses and companies had become dependent to Information Technology. Anti Trust Solutions Ltd, a small to medium sized business (SME), decided to upgrade and buy new versions of their hardware and software from the large multi-national International Business Networks (IBN) that would best fit their company, who develop software used in expert systems. But before hand, the company should be knowledgeable of legal issues concerned prior to the Hardware and Software Project such as hardware and software contracts, Supply and Goods Act, and liabilities of IBN in case of defective software, to be able to protect rights and obligations that may be put into question in the future in case of unfavorable consequences.
II. Legal distinctions between Hardware and Software Contracts
Before any transactions be made between two parties, a contract stating all its terms and conditions regarding the project should be agreed upon first. This is to protect the rights and obligations of the two companies involved.
There are some contracts that relate both software and hardware. What are the legal distinctions between the two types of contracts?
Hardware contract, which is a form of ‘goods’, can either be sold outright or be hired to the customer and in case of defect, provisions for maintenance or a separate maintenance contract with a different company is included to the contract. A warranty stating that an engineer will be on site for a particular period, but it doesn’t necessary mean that he will provide the spare parts or he will be able to repair the problem (Wilde & Mitchell 2007).
Customers often worry about how long before the hardware’s obsolescence and its spare parts’ accessibility. In most cases, hardware still works but software needs to be upgraded, and often times, it cannot cope with the new software version. Hardware can possibly be upgraded too, but if not, replacing it is necessary (Wilde & Mitchell 2007).
Software contracts are divided into two types: the provision of software (sub-categories: contracts for the provision of an existing software package & contracts for software development) and software support (Wilde & Mitchell 2007).
In software contracts, intellectual property rights are very critical. Software license is issued first to be able to legally use the software; a privilege to exercise rights in information, to access a facility, or to transfer controls is handed over to the licensee. It involves using, copying, modifying, displaying, disclosing, performing, and accessing the use of the software. However, the licensee only acquires the rights to the copy of the information, and not the information itself. He has no right of creating more than a backup copy, non-essential modifications, public display of work, and copy distribution or rentals (Doferty 2001).
Software support contracts relate to the correction of errors in the existing software, and sometimes it require the supplier to make further changes. For example, change in hardware or network; software should also be changed to match the changes in its environment (Wilde & Mitchell 2007).
Software contract only gives a license and support about using their software. It doesn’t necessarily mean that you will be having ownership rights unlike in hardware contract.
Often included in hardware and software contracts are restrictions on warranty period, limited remedy provision, disclaimer of express and obscure warranties, exclusion of indirect and consequential damages provisions, and restraint on overall liability. But, according to Uniform Commercial Code, inclusion of such terms and condition is considered enforceable (Grossman & Nesta 1999).
The hardware contract should include a payment provision stating that final payment for the hardware will not be made until the software has passed a predefined acceptance test. The user should be permitted to delay delivery of the hardware system until the software has passed a preliminary acceptance test on equipment which is not located on the user’s premises (Raysman & Brown 1984 8-19).
The software contract should contain a representation that the hardware configuration is adequate for operation of the software system. If the hardware configuration is too small, even though the software is performing correctly, the overall system may be inadequate for the user’s needs. Within the context of the software development agreement, the user should also request a representation that the software vendor will interface with the hardware manufacturer to assure that the overall system meets the user’s needs (Raysman & Brown 1984 8-19).
III. Effects of the Supply of Goods and Services Act upon the Hardware and Software Project.
According to the Supply of Goods and Services Act, the consumer has the right to complain if the service is sub-standard or the goods supplied during a service is faulty. If the customer is discontented with the service, he may demand for an effective repair or request a reimbursement for the cost of counteractive work if the trader will refuse to repair.
However, exceptions include a sudden or unreasonable change of mind, an attempted repair of the customer himself, and if he misuse or damage the items himself. The customer can only claim against the person or company you had made a deal with, and in case of sub-contracts, you cannot claim against the sub-contractor (Walsall Metropolitan Borough Council 2001).
IBN should carry out reasonable care and skills, at a reasonable time, with a reasonable charge. Terms and conditions should be indicated in the contract which should be agreed by both parties. Deviating from the agreement may result in breach of contract.
If in case, the International Business Networks [IBN] provided hardware and software which are sub-standard and didn’t meet the expectations from the initial requirements given by the Anti-Trust Solutions, the latter has the right to demand for a better service or product from IBN. If IBN refuses to do so, the client may opt to cancel the order or take back the money paid. This is legal, given that the client has reasonable basis. In other terms, IBN is not liable in case of damage and the like without any reasonable cause by the company.
IV. Defective Software
A product is said to be defective if at the time of distribution, it contains built-up defect, or defective designs, or is faulty because of insufficient information or warnings. The defect is said to be in the manufacture if it is far from its intended design despite all possible care exercised in the preparation and marketing of the product, while defective in the design includes risk posed by the product which could have been reduced or avoided by the adoption of a reasonable alternative design by the distributor.
Data losses, business disruption, economic loss, waste of time, physical destruction of equipment, personal injury, reputation loss, privacy or confidential information loss; all of these are possible consequences of system crashes and security breaches which can probably be accused to the purchaser.
The IBN is liable of defective and faulty hardware and software at the time of distribution or during a certain period of time as indicated to the contract. But if stated in the contract that there are restrictions in the purchaser’s recovery to repair or replacement of the product in a misleading manner, the purchaser may attempt to bring a cause of action for fraud in the inducement: sue off the contract and recover actual and consequential damages (Grossman & Nesta 2001).
Let’s take for example the case of Compu-Med Systems Inc and Cincom Systems, Inc, the court found that a remedy fails of its essential purpose; all other damage limitations that may exist in the contract are invalidated. On the contrary, Office Supply Co. v. Basic/Four Corp., and Cash Management Services, Inc. v. BancTec, Inc., the Office Supply court stated that an exclusion of incidental and consequential damages is a contract provision separate and distinct from a limitation of remedy to repair or replace and must receive separate consideration. Moreover, the court in BancTec refused to allow the purchaser to recover consequential damages because the court found that both parties were knowledgeable business enterprises and should have understood at the time of contracting the risks that were being apportioned with the consequential damage waiver language (Grossman & Nesta 2001).
The company will find guilty of fraud if: the company made a false representation; the company intended to deceive the client with the false representation; the client was unconscious of the deceptiveness of the version that’s why he accepted the transaction confidently; or if the deceitful version brought damage to the customer (Brown 2007).
The purchaser can also reject the whole, accept the whole, or reject some defective software provided of reasonable time after delivery. If the software or hardware is not recently purchased, the purchaser will be unable to avail of the remedy, unless seasonal notification has been sent to the seller. However, the remedy does not include warranty to the damage done by the product (Grossman & Nesta 2001).
Strict liability, or liability without fault, is also one of the allegations that can throw to the company in case of defects. However, often times, this case are not recognized by authorities unless proven that the software was intentionally programmed to be used in a threat to the public or the party involved. If there is no sufficient evidence, claims will be considered null and void. The doctrine is limited to cover injuries to persons or property, loss of profits and reputation are excluded (Brown 2007).
V. Defective Software due to Negligence
As stated in negligence law, any company should not release a certain product unless definite proofs and representations are provided that it would not cause any harm or risk of personal injury or property damage. In case our client experienced such troubles due to the negligence of our company (if reasonable procedures and actions are not taken to ensure that the product was safe), they can file a case against us (Kaner 1995 pg 3).
Strict liability and negligence liability is almost the same. The difference is that in negligence liability, the injured party needs to provide evidence that the manufacturer of the software failed to build up and test its product well enough to the point where it was rationally confident that the product was safe to operate, or that the operator of the software failed to use the software correctly or grossly failed to interpret the software’s findings correctly. A proof that the software is defective is not enough to file allege for negligence liability. It can only serve as a proof of negligence but it is not crucial. Mistakes and accidents are inevitable even if extreme care is practiced in the enhancement of the software.
In some cases, negligence is also assumed in relation with performance representations. The software may be functioning very well, there are cases that the client is not satisfied or fulfilled with the outcome, or they have greater expectations about the project. This occurrence may result in allegation of negligent misinterpretation to the developer. As with faulty software, it is not adequate to basically verify that the illustration turned out to be counterfeit. The consumer must provide evidence that the developer failed to implement outstanding supervision and considerations when he completed it.
Courts will not acknowledge allege of negligence if the disclaimer purely and selfishly intends to gain back or recover economic losses such as profits and reputation. As with a claim of “strict liability,” most courts will only recognize an accusation of negligence when personal injury or property damage has occurred.
In case Anti Trust Solutions Ltd file a case against our company, IBN, which is a large multi national company, their claims for negligence liability against us will not be considered by the law given that before hand, we will provide them with presentations that the hardware and software solutions made for them is perfectly compatible. Just in case things go wrong such as malfunctioning of some software or hardware by some reasons, which is not inevitable, we can replace or fix it as soon as possible. However, we are no longer responsible for the damage done due to defective software unless we will be proven guilty of disobeying the negligence law. Some consumers allege negligence liability to the purchaser so that liabilities can cover even the damage done due to defective software.
To avoid such occurrences and unfavorable consequences with the other company, IBN should be obliged to perform different tests to assure that the hardware and software will function well and that the solutions made will be compatible with each other. In addition, our company should also show that our products are totally safe. Negligence can still be avoided or at least minimize if the responsible party will provide its utmost care and attention.
With all the information stated above, I have come into a conclusion that entering a project to replace old antiquated hardware and software with Anti Trust Solutions Ltd is positively recommended.
We will provide compatible hardware and software solutions which best fit their expectations to the company and will also help them develop expert systems.
First of all, we should prepare a legal contract stating all our terms and conditions about the project. As stated to the Supply and Goods Act, part of our liabilities is to provide a warranty offering free of charge replacement and resolutions in case of defects at the time of delivery, given that the trouble or damage is not due to misuse and misinterpretations in the warnings and rules of the hardware and software of the client or user. They can demand for a replacement or reject our products if they find the outcomes not satisfactory with their initial requirements stated in the contract. If the company did not entertain any complains from them, they can demand for a refund of the price paid to us, and worst, they may take the case to the court. That is if our client provide reasonable basis against our company.
Moreover, a contract should also state that the purchaser agreed and witnessed that the hardware and software solutions released for them are in good terms, hardware and software are perfectly compatible with each other, and that those are satisfactory for them in a clear and not misleading statements. That is to avoid claims of fraud liabilities against our company.
In cases of defective software, given with reasonable time and basis, the company is liable of fixing troubles to the software but we are not liable of the damage done because of defective software that is if we are not guilty of not obeying the negligence law. If by fault, we have delivered faulty hardware or software or if they are not compatible, we can immediately send repair jobs or replace it with new products. But if the damage is done or defects were found out long after it has been purchased claiming that it is our company’s fault, this case wont be considered, unless seasonal notice have been sent to our company.
Our company may shoulder different liabilities in case of defective software that is being provided. However, I believe these can be controlled or minimize if utmost care and attention is practiced.
Our company wouldn’t be where it is right now if it is afraid of challenges. We shouldn’t be overshadowed by these liabilities. Moreover, provided with information about legal issues such as rights and obligations of both parties, I believe this project with Anti Trust Solutions Ltd will be successful.
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