Professional Issues Part V: Contract Law Dr. Amanda Sharkey ...

ProfessionalIssues

PartV: ContractLaw

[email protected]

DepartmentofComputerScience

UniversityofSheffield

Contracts

• Acontractisanagreementbetweentwoormorepersons(thepartiestothecontract)thatcanbeenforcedinacourtoflaw.

• Contractlawlargelybasedoncommonlaw.• Essential

– Allpartiesmustintendtomakeacontract– Allpartiesmustbecompetenttomakeacontract(e.g.oldenough,andofsoundmind)

– Theremustbea‘consideration’,i.e.Eachpartymustbereceivingsomethingandprovidingsomething

EssenFal: AllparFesmustintendtomakeacontract

• e.g.Tamara:I’llletyouhavethiscarfor£1000-Amy:okdone. • ifAmysaysshe’llgiveTamaraaliMtotherestaurantinreturnforaglassofwine,nocontractisintended

– AllparFesmustbecompetenttomakeacontract(e.g.oldenough,andofsoundmind)

– Theremustbea‘consideraFon’,i.e.Eachpartymustbereceivingsomethingandprovidingsomething• e.g.£1000fromAmy,carfromTamara

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OverviewofContractLawAcontractisalegallyenforceableagreement.• Acontractisenforceablesincethereislegalactionavailable,

– incaseonepartyshouldfailtocomplywiththeirpromiseundertheagreement.

• Liabilitycannotbeunfairlylimited,andliabilityfordeathorpersonalinjurycannotbelimited.

• Theusualremedyismoneycompensation,knownasdamages.• Whenapartydoesnotcomplywithtermsofacontract,abreachof

contractissaidtohaveoccurred.• AnimportantdoctrineofEnglishLawisprivityofcontract:

– thisstatesthatthirdpartiesareunabletosueonacontractthatdoesnotconcernthem.

• Acompanyisexpandingandneedssomesoftwaretocalculatewagesandprintpayslips.Thecompanyhasquiteanoldcomputersystem,forwhichthereisnoexistingsoftwaretodothetask.Therefore,thecompanydecidestocontractasoftwarehousetodevelopsomebespokecode.Currently,thecompanyhasabout200employeesbutthisislikelytoincreaseinthenextyearorso.

• Arrangeyourselvesinpairsorsmallgroups,halfrepresentingthesoftwarehouseandtheotherhalfrepresentingthecustomer.Negotiateacontract.Youdonothavetowriteeachclauseindetail,butyoushouldidentifytheclausesthatarerequiredandnoteanypointsintheclauseofparticularimportance.

1.IntroductiontoSoftwareContracts•Asoftwarecontractisacontractforthesupplyofsoftware(eitherbespokeoroff-the-shelf).•Manysuchcontractsarenotsalecontracts,butarelicenceagreementsthatallowacustomertousesoftwareinreturnforalicencefee.

•Manycontractualproblemsoccurbecauseoftheuniquenatureofcomputersoftware.Q.Whatisuniqueabouttradingcomputersoftware?

Whenacontractisenteredintoforthelicensingorcustomdevelopmentofsoftware:•Bothpartiesshouldknowpreciselywhatisexpectedintermsofperformanceandthestandardsrequired.•Acomprehensivespecificationmustbedrawnup.•Thecontractshouldprovideafairmeansofidentifyingresponsibilitiesandresolvingdisputes.•Liabilityforanyinjurytopersonsorpropertyasaresultoferrorsinthesoftwareshouldbeconsidered.

1.2.Fundamentalsofsoftwarecontracts•Softwareisusuallyacquiredbyalicence,whichisgrantedbythesoftwarepublishertothepersonacquiringthesoftware.

•Thelicencemaybeforafixedperiodoftime.

Thenatureofsoftwareandthefactthatitisnormallyacquiredviaalicencehastwolegalimplications:

•TheSaleandSupplyofGoodsAct1994(whichamendedtheearlierSaleofGoodsAct1979)doesnotapplytocomputersoftware.

•ComputersoftwareisexemptedfrommuchoftheSupplyofGoodsandServicesAct1982.

Theseacts‘imply’termsintoacontractforsaleorsupplyofgoodsorservices.

Theimpliedterms,whichcannotbemodifiedorexcluded,giverightstotheconsumer.

1.2.1.SaleandSupplyofGoodsAct(SSGA)(1994)andsoftwareTheSSGAimpliestermsincontractsofsalesuchas • Thegoodsmustmatchtheirdescriptioninthecontract. • Thegoodsmustbeof‘satisfactory’quality. • Thegoodsmustbefitfortheirintendedpurpose. • Thesellerhastherighttosellthegoods.But‘goods’aredefinedas‘allpersonalchattelsotherthanthingsin

actionandmoney’.•Copyrightisa‘thinginaction’(otherexamplesaresharesormoney

orders).Softwareisthereforeexcludedfromthedefinitionof‘goods’.

•However,computerhardwareorcomputermedia(magnetic/opticaldisks)aretreatedasgoods.

Alsoalicenceisnotacontractforsaleofgoods.Whynot?

•So,thetermswhichareimpliedintoacontractforthesaleofgoodswillnotapplytoasoftwarecontract.

1.2.2.TheSupplyofGoodsandServicesAct(SGSA)1982andcomputersoftware

•TheSGSAimpliesterms intocontractsinwhichtheownershipofgoods

changeshands incontractsforthehireofgoodsandcontractsfor

services.•Butforreasonsgivenabove,softwareisexcludedfromthe

‘supplyofgoods’partoftheSGSA.•TheSGSAisrelevantifaprogrammeriscontractedtowritea

computerprogram,sincethisisa‘service’.•Thesupplyofanexpert(orknowledge-based)systemcouldalso

bedeemedtobeprovidingaservice.

ThetermsimpliedbytheSGSAareasfollows:•Thesupplier,ifactinginthecourseofbusiness,mustcarryouttheservicewithreasonablecareandskill.

•Intheabsenceofanagreedtimeforcompletion,thesupplierwillcarryouttheserviceinreasonabletime.

•Unlessthecontractfixesthepayment,thesupplierwillbepaidareasonableamount.

Q.Whatconstitutes‘reasonablecareandskill’insoftwaredevelopment?

1.2.3.TheSupplyofGoodsandServicesAct1982andexpert(orknowledge-based)systems

•TheSGSAmaycoverthesupplyofexpertsystems,sincethegivingofadvicebythesystemcouldbeinterpretedasthesupplyofaservice.

•Ifanexpertsystemissuppliedbyadealer,whoisthesupplieroftheservice?

Thedealer? Thesoftwarecompanythatmadetheexpertsystem? Thedomainexpert?• Q.Whyisthisquestionimportant?

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• Foranoff-the-shelfexpertsystemsuppliedbyadealer,– thecustomerreliesonthedealertoprovideasuitableandeffectivesystem.

• Ifthecustomerspecifiesthesystemhewants:– theotherpartyinthecontractwillbethesoftwarecompany;– thedealerwillbeanagentofthesoftwarecompany

• ietheyactonbehalfofthecompany;– thedomainexpertmayhaveacontractwiththecustomer,– oraseparatecontractwiththesoftwarecompany

1.3.Breachofcontract•Ifapartytoacontractbreachesitsterms,theremedydependsonthetypeoftermsthathavebeenbroken.

•Therearetwotypesoftermsincontracts;warrantiesandconditions.•Abreachofconditiongivestheaggrievedpartytherighttocancelthecontractandclaimdamages.•Abreachofwarrantyallowstheaggrievedpartytoclaimdamagesonly—thecontractremainsinforceandmustbecompletedbybothparties.

1.3.1.Exampleofbreachofcondition•Failuretodeliveraproductbyanagreeddateisabreachofcondition;thebuyercancancelthecontract.

•Thebuyermayalsoclaimdamageswhichwouldbeequivalenttothedifferenceincostofbuyingasimilarproductelsewhere.

•Thebuyercanalsoclaimotherexpensesandlossesincurredasadirectresultofthebreach.

Importantcase • TheSalvageAssociaConvCAPFinancialServicesLtd(1995)

• TheSalvageAssoc.wantedtocomputeriseitsaccounFngsystem-awardedcontracttosoMwarehouseCAP.

• SoMwarewasdevelopedinORACLEbutmanyerrorsevidentatusertraining(CAPteamnotsufficientlyexperiencedinuseofORACLE)

• arevisedcompleFondatewasagreedbutnotmetbyCAP

• SalvageAssoc.rejectedsoMwareandsuedforreturnofmoneypaidanddamagesforwastedFme

• initsdefenceCAPcitedexclusionclauselimiFngitsliability

Verdict??

• JudgeruledthatSalvageAssociaFonwerejusFfied-recoveredmoneyandwasawardeddamages

• RulingbasedonSupplyofGoodandServices,andexclusionclauseheldtobeunreasonableunderUnfairContractterms

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1.3.2.Exampleofbreachofwarranty•Asupplieragreestodeliveracomputersystemwithmonitorsthatareaparticularcolour,butdeliversmonitorswithdifferentcolour.

•Thisisabreachofwarrantyunlessthereisaspecialreasonwhyaparticularcolourwasspecified.

•Thebuyerwillbeentitledtodamagesonly,andwillstillhavetopaytheagreedpriceofthecomputer.

1.4.ExemptionclausesAnexemptionclauseexcludesorrestrictstheliabilityofapartywhoisinbreachofcontract.Therearetwotypes:•Exclusionclauses—givetotalexemption,e.g.Asuppliermayexcludetheirliabilityforlatedeliveryifthisiscausedbycircumstancesbeyondtheircontrol.

•Limitationclauses-limitsliabilitytoaspecifiedamount,e.g.softwaresuppliermaylimittheirliabilityforfaultysoftwaretothelicencefeetheyhavebeenpaid.

1.4.1.Limitationofliability•Apersondraftingacontractisalwayskeentolimitorexcludetheir

liabilitywhileensuringthattheotherpartyisboundtoperformhispartofthecontract.

•However,aone-sidedstateofaffairsisraresinceexemptionclausesarecontrolledbystatute–theUnfairContractTermsAct1977.

•

UnfairContractTermsAct1977

ThisActlimitstheextenttowhichliabilitycanbeexcludedorlimitedforbreachofcontractornegligence.

•Businessliabilityfordeathandpersonalinjurycausedbynegligencecannotbeexcludedorlimitedinanyway.

e.g.Companysuppliessoftwaretocontrollightrailwaylink,andadefectleadstoanaccidentinwhichpeoplearekilledorinjured.Cannotenforceclauseincontractthatclaimstorestrictliabilityifclaimsaremadefordeathsandinjuries.

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ImportantcaseStAlbansCityandDistrictCouncilvInternationalComputersLtd(1996)• CouncilorderedacomputersystemfromICL(InternationalComputersLtd)

tocomputethecommunitychargesystem.• ICLusedstandardtermsandconditions,whichstateditsliability‘willnot

exceedthepriceorchargepayablefortheitemofEquipment,ProgramorServiceinrespectofwhichliabilityarisesor£100,000(whicheveristhelesser).

• Errorsinthesoftwaremeantthepopulationoftheareawasoverestimated,residentswereundercharged,andthecouncillost£1.3million

• JudgefoundsoftwarewasnotfitforpurposeandICL’sprojectmanagerhadbeennegligent,andthatICLwasinbreachofcontract.

• Judgedecidedthatclauselimitingliabilityto£100,000wasnotreasonable–basedonUnfairContractTermsAct1977

• ICL’sappealwasallowedinpart–damagesreducedto£685,000• Butunclearofvalueofthiscaseasaprecedent.• SeeBainbridgepg256

2.ContractsforbespokesoftwareAppropriatesoftwaremaynotbeavailable‘off-the-shelf’forcertainspecific

tasks.• Softwarecanbewrittenoradaptedbyaspecialistsoftwarefirm—a

‘softwarehouse’.• Therearecommonsectionsfoundinmostcontractsforwritingsoftware:

– definitions,– licenceagreementconditions,– contractpriceandpaymentterms,– specificationofthesoftware,– timeforcompletion,andtermsforearlyorlatecompletion,– arrangementsformaintenanceandenhancements,– escrow,– intellectualpropertyrights,– otherstandardterms.

Definitions

Thefirstclausesdefine:– thepartiestothecontract;– thehardwareonwhichthesoftwarewillbeinstalled;and– othersoftwarewithwhichitmustoperate(egtheoperatingsystem).

• Tosavespace,andassiststandardisation:– theclient’sfullbusinessnamewillbeabbreviatedtoatermsuchas‘client’

or‘customer’,and– thedeveloper’sfullbusinessnamewillbeabbreviatedtoatermsuchas

‘developer’.• Similarly,theterms‘software’and‘hardware’willusuallybe

defined,– torefertothespecificsystemtobeused.

• Thisalsoassistswiththereadability,interpretationandconstructionofthecontract.

LicenseagreementThekeyissuetobespecifiedis:willtheclientactuallyownthesoftware?• Usually,theclientwilllicencethesoftwareratherthanhaveownership.• Acontractforwritingsoftwareistherefore—inmostcases—alicence

agreement.• Ifitisespeciallyimportantfortheclientthatthesoftwareitrequiresisnot

soldelsewhere,itshouldinsistonanexclusivelicenceoranassignmentofcopyright.

• Willanexclusivelicencecostmoreorlessthannonexclusivelicence?

• Whymightaclientinsistonanexclusivelicence?

• Therearethreeotherimportantaspectsofthelicenceagreement:– duration,– transferral– scope.

Duration,TransferralandScopeDuration.• Alicencemustbeforafixedperiodoftime.• Ifadurationisnotstated,itislikelythatthelicencewillendureforaslong

ascopyrightsubsistsinthesoftware.

Transferral.• Thecontractshouldstatewhetherthelicencecanbetransferredtoathird

party.• Bydefault,licenceagreementsareusuallyassumedtobetransferable.

Scope.• Isitpermissibletorunthesoftwareonmorethanonemachine?• Ifthebuyerisamemberofagroupofcompanies,cantheothermembers

ofthegroupalsousethesoftware?• Canthesoftwarebetransferredfromonememberofthegrouptoanother?

Allthesequestionsshouldbeanticipatedwhendrawingupacontract,– andshouldbediscussedwiththedevelopers’softwarehouse.

Contractpriceandpaymentterms

• Acontractisusuallyintheformofalicenceagreement,sothepaymentforitisusuallytermedalicencefee.

• However,thefeemaybecalledthepricesinceitmayalsoincludetraininganddocumentation.

• Thepriceshouldbestatedprecisely,but:– thecontractshouldalsoprovideamechanismforcalculatingthecostof

additionalworkoutsideofthetermsofthecontract;– theeasiestwaytodothisistostateanhourlyrateforprogrammers,

analystsetc.• Ifthepriceisalumpsum,doesitinclude:maintenanceand

training?documentation?thecostofstoragemedia?• Thecontractshouldensurethatthereisnoambiguityregarding

whenpaymentshouldbemade,including:– iftheclientislatepaying,willtheybechargedinterest?– whatiftheclientrefusestopay?

• Somesoftwarehousesrefusetofixapriceforacontract.

SpecificationofthesoftwareThespecificationofthesoftwareshouldindicatethefollowing:• Adetaileddescriptionofthetasksthesoftwarewillperform.• Theequipmentonwhichthesoftwarewillrun.• Howquicklythesoftwarewillcarryouttheoperationsrequired,bearingin

mindanyrequirementsfornetworkingandconcurrentuse.

Oftentheclientisn’tsurewhattheywant,so:• Theymayneedtochangethespecificationduringthedevelopment

process.• Theoriginalcontractmustallowforthesechanges.• Ifthechangestothespecificationareconsiderable,itmaybebestto

terminatetheexistingcontractandnegotiateanewone–whichiscallednovation.

Iftheclientisvagueaboutthespecification:• Itmaybebettertobuildaprototypesystem,but

– therecanbeproblemswithbuildingprototypes,unlessallpartiesacceptthattherequirementsforthemmaybevague

AnimportantcaseComynChingLtdvRadiusplc(1997).• ComynChingLtdwantedtointegrateitscomputersystems.• Radiusplcwasappointedtodothis.• Radiusplctwiceofferedtocarryoutafeasibilitystudybeforethecontract

wassigned,forwhichthecostwouldhavebeen£6930.• ComynChingLtdturneddownthisofferonbothoccasions.• ComynChingLtdwerenotsatisfiedwithRadiusplc’ssolution,andsuedthem

for>£3mdamages.• ComynChingLtdhadlittleknowledgeofcomputers,butdecidednotto

employaconsultant.• TheyarguedthatRadiusplcowedthemadutyofcare,andthatthisincluded

investigatingtheirrequirementsbeforehandatnocosttothem.• Verdict?• Thejudgerejectedthis–heconsideredComynChing’srequirementstobe

veryfluid–a‘moveablefeast’.• SeeBainbridgepage279(6thedition)formoredetails.

Timeforcompletion

Theusualmethodofdealingwithlatecompletionistoincludeaterminthecontractwhichgivestheclientarighttoliquidateddamages.

• Thesemaybequantifiedasacertainsumofmoneyforeveryweekcompletionislate(e.g.£200perweek).

• Asumforliquidateddamagesmustbeagenuineestimateoffinanciallossesthattheclientwillsufferasaresultoflatedelivery,notapenalty.

Whendoestheclientknowthatcompletionhastakenplace?• Acommonpossibilityhereistheconceptof‘substantialcompletion’:

– wherealargepercentageoftheagreedpriceispaidonthecompletionofasubstantialpartofthesystem,

– andtherestisretaineduntiltheremainingworkhasbeencompleted.• Ofcourse,themeaningof‘substantial’shouldbedefinedinthe

contract.

MaintenanceandEnhancementsTestingrevealsthepresenceofbugs,nottheirabsence.• Manybugsappearonlyafteralongperiodoftime.• Ifabugappears:

– thiswillbeabreachofwarranty,and– theclientcanaskthesoftwarehousetocorrecttheerror.

Thesoftwarehousewillwishtolimititsresponsibilityforcorrectingsucherrorstoaspecifiedperiodoftime.

• Asoftwarehousewillusuallyofferanancillarycontractformaintenance.Suchanagreementwillalsoprovideforenhancementsandupdatesofthesoftware.

• Iftheclientswanttomodifythesoftwarethemselves,acontracttermshouldstatethis:– recalltherulesaboutcorrectingerrorsintheCopyright(ComputerPrograms)

Regulations1992.

EscrowWhathappensifasoftwarehousegoesoutofbusiness?• Willitsclientsbeabletomaintainandmodifytheirsoftware

– orfindanothercompanytodothisforthem?• Manycontractsincludeanescrowclausetocoversuchsituations.• Escrowisaformofinsuranceorguarantee,shouldsomethinghappento

thesoftwarehouse:– thesoftwarehousedepositsmaterialwithanindependentperson,– vizthesourcecodeofasystem,– pluscopiesofallthedesigndocuments(e.g.UMLdiagrams).

• Shouldthesoftwarehousegooutofbusiness,then:– thesourcecodeanddocumentswillbereleasedtotheclient,– whowillhaveeverythingneededtoarrangesupportforthesoftware.

• OneorganisationthatprovidesthisserviceisNCCGroupplc:– (at<http://www.nccgroup.com>),– aspin-outoftheNationalComputingCentre(see<http://www.ncc.co.uk>).

Intellectualpropertyrights

• Thecontractmayimposedutiesonbothpartiesinregardofintellectualpropertyrights.

• Whatrightswilltheclientwant?

• Whatrightswillthesoftwarehousewant?

• Aswellascontractterms,copyrightlawandthelawofconfidencewillgiveprotectiontobothparties.

• Theclientshouldinsistonanindemnityterminthecontract,– topreventlegalactionbeingtakenagainstthem,ifthesoftwareinfringes

theintellectualpropertyrightsofathirdparty.– (Indemnity–guaranteeingtocovercostsfortheother)

OtherTermsandStandardContracts

Acontractforwritingsoftwaremayalsoneedtocover:– trainingoftheclient’sstaff,– conditionsforterminationofthelicence,– andsoon.

Inmanycases,itwillbepossibletouseoradaptastandardformofcontract.• Mostsoftwaredevelopmenthouseswillhavetheirownstandards.• Therearecommercialorganisationsthatcansupplytemplates,suchas:

– <http://www.simply-docs.co.uk/>,or<http://www.netlawman.co.uk/>.• Therearealsoprofessionalorganisationsthatcanprovideadvice,suchas:

– theCharteredInstituteofPurchasingandSupply,– at<http://www.cips.org/>.

IndependentProfessionalSupervision

Itmaybeadvisabletohavelargecontractsoverseenbyanindependentprofessionalconsultant.

• Theconsultantwouldberesponsiblefor:– ensuringthatthespecificationismet;– generalsupervision;– ensuringthatpaymentsaremadeandthecompletiondateismet;– fixingratesfordelaysorextrawork;– authorisingtimeextensionsforunavoidabledelays;– actingasanarbitrator.

• Theconsultantwillprobablybepaidbytheclient.• Suchconsultantsmaybeindividuals:

– withappropriateprofessionalqualifications,– egaCharteredMemberoftheBCS.

• Ortheymaybelargerorganisations:– eg<http://www.integra-associates.com/>.

3.Shrink-WrapLicensing(orrip-seallicense)•Withofftheshelfsoftware,thereisnoopportunityforasigned

licenceagreement.•Theresponseofthesoftwareindustrytothisproblemisthe

‘shrink-wraplicence’orrip-seallicense•Thecontractisdisplayedonthepackaging,visiblethroughaclear

plasticfilm.Thetermsaredeemedacceptedifthepackageisopened.

(Rip-seal:e.gbreakingthesealonthecasecontainingthesoftware)

•Shrink-wraplicencepurportstobeadirectcontractbetweenthesoftwareproducerandtheconsumer,quiteseparatefromthecontractofsalebetweenthedealerandcustomer.

•Cansuchacontractactuallyexistinlaw?

3.1.Enforceabilityofshrink-wraplicences•Acontractrequiresthreeelements;offer,considerationandacceptance.•Thedisplayofthelicenceonthepackagingconstitutesanoffer.

Considerationrelatestothefactthatthelicenseeispayingafeetousethesoftware.Acceptancemaybeindicatedbybreakingopenthepackage.

•Shrink-wraplicencesareproblematicbecausetheopportunitytoreadthetermsoftencomesafterthecontractismade,i.e.afterthecustomerhaspaidandthesoftwareisphysicallyhandedtothecustomer.

•Animportantprincipleincontractlawisthatitisnotpossibletounilaterallyintroducenewtermsintoacontractafterithasbeenmade.

.

AnimportantcaseBetaComputersLtdvs.AdobeSystemsLtd1996.• BetaComputerssuppliedAdobeSystemswithsoftwareproducedbyInformixSoftware

Inc.• Thesoftwarehadashrink-wraplicence–‘OpeningtheInformixS.I.Softwarepackage

indicatesyouracceptanceofthesetermsandconditions’.• Adobeclaimedithadtherighttorejectthesoftwareuntilopened.• Betasuedforthecostofthesoftware.ThecasewasbroughtinScotland,anddecidedunderScottishlaw.• Thejudgedecidedthat:

– thesupplyofthesoftwareisnotseparatefromthesupplyofthemedia– soitisasingleuniquecontract,– andwasenteredintoonopeningthepackage(i.e.whenthetermsofthelicencewere

accepted),notwhenthesaleismade.– Adobecouldreturnthesoftware– Butthedecisionwascontroversial

• IntheUSA,thesituationisclearer:– apurchasercanrejectthesoftware,havingreadthelicenceterms– i.e.afteropeningthepackage.

• SeeBainbridgepages227and303formoredetails.

Web-Wrap/Click-WrapLicences

Copyrightworks–software,music,books–maynowbeacquiredon-line.

• Incontrasttoshrink-wraplicensing,thepurchasercanbepresentedwiththetermsoflicensebeforepurchasing

• Thecopyrightworkisonlymadeavailabletopurchaseifthe‘agree’buttonisclicked.

• Clickingthe‘agree’buttonincorporatesthetermsofthelicenseintothecontracttopurchase.

• Web-wraplicensescannotnormallybeusedtoassignintellectualpropertyrightsorexclusivelicenses:– unlessalegally-recogniseddigitalsignatureisused,– becauseawrittenandsigneddocumentisrequired.

4.ContractsBetweenAuthorandPublisher•Manycompaniespublishsoftwarethathasbeendevelopedbyself-employedfreelanceprogrammers.

Q.Whydofreelanceauthorspublishtheirsoftwarethroughothercompanies?

•Thefreelanceownsthecopyrightinthesoftware,sohewillgrantalicencetothepublisherpermittingthemtomarkettheproductonthebasisofaroyaltypayment.

•Normally,thelicencewillbeexclusive,givingasinglepublisherthesolerighttodealwiththesoftware.Thepublisherthenhasthesamerightsundercopyrightlawasifitownedthecopyrightitself.Q.Isthisstateofaffairsadvantageoustotheauthor?

4.1.Payment•Thesoftwareauthorwillbepaidaroyaltybythepublisher,which

maybeafixedsumforeveryunitsoldorapercentageofthepricechargedforthesoftware.

•Alternatively,theauthormaybepaidalumpsumforanexclusivelicence.

Somecareshouldbetakenwhenquantifyingtheamountofroyaltypaymentsinthecontract:

•Ifroyaltiesarebasedonthepriceofthesoftware,isthistheretailpriceorthepaymentthepublisherreceivesfromadealer?

•Dodealersreceivediscountsforbulkpurchasesthatcouldaffecttheamountofroyaltypayment?

•Whathappensifthepublisherdoesnottryhardtomarketthesoftware?

•Cantheauthorcheckthepublisher’saccountsatregularintervals?•Howfrequentlywillroyaltypaymentsbemade?•Istheauthorabletoterminatethecontractifthepublisherceases

tomarketthesoftware?

• Acompanyisexpandingandneedssomesoftwaretocalculatewagesandprintpayslips.Thecompanyhasquiteanoldcomputersystem,forwhichthereisnoexistingsoftwaretodothetask.Therefore,thecompanydecidestocontractasoftwarehousetodevelopsomebespokecode.Currently,thecompanyhasabout200employeesbutthisislikelytoincreaseinthenextyearorso.

• Arrangeyourselvesinpairsorsmallgroups,onerepresentingthesoftwarehouseandtheotherrepresentingthecustomer.Negotiateacontract.Youdonothavetowriteeachclauseindetail,butyoushouldidentifytheclausesthatarerequiredandnoteanypointsintheclauseofparticularimportance.Makesurethatyourcontracttermscovereachofthefollowingquestions:

• Questionsforthecustomer:(thingsthecustomershouldbeconcernedabout)• •Whatifthesoftwarecontainsbugsandmiscalculatesthepay?• •Whatifthecomputerbreaksdowninthemiddleofawagesrun?• •Whatiftheprogramsruntooslowlytobeofanypracticaluse?• •Whatifthesoftwaredevelopergoesintoliquidation?• •Howisthesoftwaredevelopertryingtoexcludehisliability?Cantheydothis?• • Questionsforthesoftwaredeveloper:(pointsthesoftwaredeveloperwillbeconcerned

about)• •Isthereanadequatespecification?• •Whatiftheclientcopiesanddistributesthesoftware?• •Shouldyouinsistonanexclusiveornon-exclusivelicence?• •Whatshouldbeyourobligationtomaintainthesoftware?• •Howcanyouprotecttheconfidentialityofspecialcodingtechniquesusedinthe

software?

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– definitions,– licenceagreementconditions,– contractpriceandpaymentterms,– specificationofthesoftware,– timeforcompletion,andtermsforearlyorlatecompletion,

– arrangementsformaintenanceandenhancements,– escrow,– intellectualpropertyrights

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– licenceagreementconditions– duration,transference,scope

– contractpriceandpaymentterms

– specificationofthesoftware– allowingforchanges?

– timeforcompletion,andtermsforearlyorlatecompletion

– arrangementsformaintenanceandenhancements

– escrow– intellectualpropertyrights

– whohascopyright?

5.Summary•Softwareisuniqueinthewayitistraded,andthishasmany

implicationsforsoftwarecontracts.•Softwareisnot‘goods’;asaresult,muchlegislationthatprotectsthe

interestsofcustomersdoesnotapply.•Contractsforbespokesoftwarearecomplexandmustbedraftedwith

care-standardcontractscanhelp.•Shrinkwraplicencespurporttobeaseparateagreementbetween

thesoftwarecompanyandthepurchaser;however,legallytheyappeartobeinextricablylinkedwiththecontractofsale.

•Softwareissometimeswrittenindependentlyandmarketedviaapublishinghouse;thepublisherusuallypaysaroyaltyfeetotheauthor.