Software: Product or Service?

FRANCESCO QUARTA E.U.I., Florence

University of Salento, Lecce

Workshop

Digital Technologies and Liabilities Digital Technologies and Liabilities EUI, Department of Law,10 April 2012

SOFTWARE- Tentative Definitions -

1) A set of statements or instructions to be used directly or indirectly in a computer in order to bring about a certain result.

(U.S. Copyright Act of 1976, § 101, as amended)

2) Intended “to include, but not limited to, the system functional design, logic flow, algorithms, application programs, operating

systems and support software for design, implementation, test, operation, diagnosis, and repair.”

(22 U.S. § 121.8 - International Traffic in Arms Regulations – “ITAR”)

SOFTWARE- Tentative Definitions -

3) Organized information in the form of operating systems, utilities, programs, and applications that enable computers to work.

(businessdictionary.com)

4) A generic term for programs that are used by computers and other products that contain logic circuitry.

In a broader sense it can also refer to all information (i.e., both programs and data) in electronic form.

(linfo.org – LINUX Information Project)

SOFTWARE- Tentative Definitions -

5) “The term ‘computer programs’ shallinclude their preparatory design material.”

“Ideas and principles which underlie any element of a computer program, including those which underlie its interfaces,

are not protected by . . . this Directive”.

(Article 1 (1) and (b) of Directive 2009/24/EC of 23 April 2009 on the legal protection of computer programs)

WHETHER A PRODUCT OR A SERVICE

Types of Software

PACKAGED

1) generally sold to consumers as a “finished product”2) “installed” by the consumer (autonomously)3) usually, no further technical support is required*

* (but for patches and updates)

WHETHER A PRODUCT OR A SERVICE

Types of Software

CUSTOMIZED

1) designed or modeled for specific end-users 2) usually installed by the vendor3) extensive technical support is generally required

ISSUES OF EXTRA-CONTRACTUAL

LIABILITY RELATED TO SOFTWARE

WHETHER A PRODUCT OR A SERVICE

Definition of ‘SERVICE’

“[A]ny self-employed economic activity, normally provided for remuneration.”

(Article 4 (1) of Directive 2006/123/EC of 12 December 2006 on services in the internal market)

WHETHER A PRODUCT OR A SERVICE

Definition of ‘PRODUCT’

“[A]ll movables even if incorporated into another movable or into an immovable. ‘Product’ includes electricity.”

Definition of ‘PRODUCER’

“[T]he manufacturer of a finished product, the producer of any raw material or the manufacturer of a component part.”

(Articles 2 and 3 of Directive 85/374/EEC of 25 July 1985on liability for defective products)

LIABILITY FOR HARM CAUSED BY DEFECTIVE PRODUCTS

- Harmonized at EU level strict liability;- Based on mandatory minimum protection;- Only for personal/non professional use;- Moral damages only recoverable in negligence (pursuant to national civil liability laws).- Tangible/intangible: numerus clausus?

The ‘Therac-25’ Accidents in North America

C.R. v. Hyundai Automobili Italia S.p.A.Trib. Naples, 21 March 2006

General Motors Co. v. Johnston (592 So.2d 1054) S. Ct. of Alabama, 1992

LIABILITY FOR HARM CAUSED BY DEFECTIVE PROVISION OF SERVICES

- Wholly left with Member States’ statutory and case law;- Predominantly, negligence-based liability rules;- Harmonization provisions in the field of contract law only; - Not only consumers are covered; - Availability of moral damages hotly debated.

Centre hospitalier universitaire de Besançon v. Dutrueux et al.

European Court of Justice (Grand Chamber),21 December 2011, C-495/10

Veedfald v. Arhus AmtskommuneEuropean Court of Justice, 10 May 2001, C-203/99

WHETHER A PRODUCT OR A SERVICE

“ Suppose that the designer (A) of a navigational software program incorrectly enters the height of a mountain, causing a plane to crash. If the software package is to be a ‘product’ for the purposes of the Directive, is a map incorrectly drawn by B, which carries the identically incorrect information to the pilot

also to be a product? If so, what about where the same information is conveyed to the pilot orally by an on-board

navigator (C) – is he the supplier of a ‘product’ ? ”

(Jane Stapleton, Three problems with the new product liability, in Essays for Patrick Atiyah, Cane-Stapleton Eds., Oxford 1991)

WHETHER A PRODUCT OR A SERVICE

?

Where is the boundary between

incorrect information and

defective product design

?

SOFTWARE CONTRACTS

DRAFTING ISSUES

(1)

SOVEREIGN IMMUNITY FROM COMMON LAW LITIGATION

Transnational contracts for the sale/licensing/lease of software between ‘public’ entities and private companies.

(Nokalva, Inc. v. European Space Agency, 3d Cir., 2010)

(2)

LIABILITY EXONERATION CLAUSESCan software manufacturers limit, if not eliminate, liability for damage somewhat attributable to software (non-negotiable shrink-wrap or click-wrap license)?

What types of damages can be excluded by means of such clauses, if any?

(U.S. Unfair Contract Term Acts)(E.U. Unfair Contract Terms Directive)

(Article 12 of the European Directive on Products Liability)

(3)

IMPLIED WARRANTIES

Can a software developer escape liability for a known design defect ?

Vertical/Horizontal Privity: What kinds of damage can be recovered?

Who?

Hou-tex, Inc., v. Landmark Graphics 26 S.W.3d 103 (2000) Court of Appeals of Texas, Houston

(4)

CHOICE OF LAW/COURT AGREEMENTS

Freedom of contract v.

Ordre Public

Main differences between the U.S. and the E.U., as witnessed by the recent adoption of the

A.L.I. Principles of Software Contracts

WHETHER A GOODOR A SERVICE

Sale of Goods or

Contract for Services?

St. Albany City and District Council v. Int’l Computers LtdEnglish Court of Appeal (1996) All ER 481

- CUSTOMIZED SOFTWARE -

THANK YOU