When negotiating Intellectual Property (IP) agreements, parties often get bogged down in the area of warranties. The purchaser will be looking for security of performance, particularly where the price for the software solution may seem high. The vendor will likely be prepared to give some warranties to secure a sale, but from their perspective will want to avoid liability for inevitable glitches and bugs. Parry Field Lawyers provide legal advice on a range of commercial matters including negotiating warranty terms in IP agreements.
Ownership of IP
One of the problems with software is whether the product is the original creation of the supplier. It is possible that it contains someone else’s licensed programs, or perhaps of greater concern, the program breaches somebody else’s unknown intellectual property rights, which may even be patented. The purchaser needs to know that its investment is sound; that no one can come along and order the purchaser to stop using the program because it breaches someone else’s intellectual property rights.
Bugs and Glitches
It is unwise to warrant software is free from defects, as few programs avoid glitches and teething problems. A claim against a supplier sometime later can seriously prejudice the supplier’s business. The purchaser on the other hand needs to know that the system will work. In the end the conflict of interest between the purchaser and the supplier is resolved by their respective bargaining power – how bad the purchaser wants to buy or the supplier wants to sell, as the case may be.
Compromise
Generally both sides compromise. However the important thing is to understand what the contract says and not expose yourself to unreasonable risks.
Implied Warranties
It’s important to understand that the law will imply warranties into a contract. There are a number of issues here. One which should be noted is that under New Zealand’s Consumer Guarantees Act 1993 the law will imply certain warranties as to the fitness for purpose and acceptable quality. The supplier is not allowed to contract out of these obligations unless it agrees with the purchaser that the product is to be used by the purchaser in business.
It is important for suppliers to realise that unless the parties agree to this, even large commercial contracts can still be subject to these consumer guarantees.
On a smaller scale, your everyday software program is likely to be purchased with “shrink wrap” terms of supply. Your should read these carefully, especially if you are investing a significant sum in the program. However, apart from the application of the Consumer Guarantees Act, it’s most unlikely that you can negotiate terms of supply which suit your expectations. The consumer does not have the bargaining power to achieve that. You have to rely on the fact that the supplier can not afford to supply poor products. Market forces rather than the terms of contract govern the issues of quality and fitness for purpose. The same principals apply to the supply of any other products.
If you have any questions about intellectual property warranties or other terms in your software contracts, contact Peter van Rij at Parry Field (348-8480) for advice.
