Information Technology Law - Essay Example

? ICT Table of Contents Introduction 3 Discussion 3 Conclusion 10 References 11 Introduction Contract law is one of the important aspects of law of obligation. This law of obligation comprises certain decisive factors such as ‘tort’, ‘contract’ and ‘restitution’. Concerning with law of contract, obligation arises when one party has entered into an agreement with another party, which would be legally binding. General contracts related to writing software are regulated by the Supply of Goods and Service Act 1982. In relation to the license agreements wherein software ownership is not transferred, the contract should include the duration and the scope of the agreement to avoid any possible misunderstanding. The cases related to sell of software is controlled by the Copyright, Designs and Patents Act 1988. Furthermore, law of digital contracts is evolving worldwide at a significant pace. It can be stated that contract law or law in general is not static. Instead, laws are often quite dynamic that involve in responding to new occurrence and innovation (Schwanzer, 2007). Based on the above mentioned statement, this report intends to discuss whether software is to be classified as goods or services by taking into concern the notion of contract law along with its various implications. Discussion Specially mentioning, consumers engaged in buying software are not generally entitled to enjoy the same rights as in the case of purchasing tangible products. In this regard, it can be stated that software is a term, which is often used to describe the collection of instruction and data that facilitate computers to function in an effective manner. Evidently, computers are redundant without proper application of software. This implies that computers are unable to perform tasks in an effective manner without the installation of software. From the legal perspective, software is notable for two major reasons. The first major reason can be related with its unique characteristics, revealing that software is not similar to any conventional law. The second major reason can be noted as that despite the widespread use of software in the modern commercial arena, it does not have any distinct legal entity. Correspondingly, there is no specific manner through which legal treatment should be implemented to resolve software related disputes. Thus, this uncertainty largely raises a question, whether software should be considered or to be classified as goods or services (Green & Saidov, 2007). The lack of precision, surrounding the legal principle of software can be regarded as both commercially inconvenient and conceptually arbitrary. The buyers of software often possess the similar expectation of rights, while purchasing other items that are recognized under the law. However, in the recent time, the refusal to consider software as goods or services can be identified as the failure of law to protect the expectation and the interest of the buyers of software. Correspondingly, the two product related aspects i.e. “tangibility” and “movability’ determine the characteristics of software (Green & Saidov, 2007). In this similar context, “tangibility” is commonly defined as possessing a physical form or being able to be perceived by senses. It can be argued that this notion acted as the stumbling block towards considering software as goods. The relevancy of “tangibility” for adjudging software as a good can be ascertained owing to the reason that most of the legal system defines the sales of contract as a sort of agreement, which is associated with the transfer of property in goods in exchange of money, denoted as price. Consequently, such transfer generally requires transfer of possession (Green & Saidov, 2007). However, in the case of possession of intangible service, both civil and common law signifies that possession of intangible is not possible and also cannot be owned. However, software can be acquired and possessed, making it tangible. Similarly, the aspect of “movability” means anything, which is not movable and cannot be transferred. Thus, it provides a rigid support for software to be considered as goods for the purpose of sales. It is because software is movable subjected to its copyright, which is not movable. In relation to the case of St AlbansCity and District Council v International Computers Limited, Sir Iain Glidewell drew distinction between software contained on a computer disc and software per se. In this particular case, the court determined that when software is supplied together with the medium on which it is loaded, then it is recognized as “goods” under the Sale of Goods Act 1979. However, the degree of liability still remained uncertain. It has been observed that in this case, St Albans City as the plaintiff made an agreement with the defendant i.e. software supplier. Software would be capable of maintaining a reliable database of the names of the taxpayers belonging to the city. Nonetheless, due to the defect in the software, it underestimated the number of taxpayers in the city resulting in charging less tax to each taxpayer. This contributed towards causing loss to the city as the software was not fit for the intended purpose. Later, the software provider was held liable for the amount of the lost incurred due to the application of the software supplied by the defendant supplier (White, 2007). Arguably, transaction of software is a contract, which is related with supply of services, rather than considered it to be sales of goods. Several legal systems recognize this distinction for the disposition. There has been considerable number of instances where attempts have been made in order to distinguish software as goods or services. Service contracts are based on constant relationship and close cooperation along with interaction between the parties involved in the contracts. At the same time, services are unable to store or possess. Thus, this aspect is considered to be a major one, which distinguishes software as goods and services. It is worth mentioning that classifying software as goods or services is considered to be a chief aspect, as this classification imposes considerable effect especially on the duties and the liabilities of sellers along with supplier of services. One of the prime ways of classifying software as a good or service is based on the criteria of contract entered between the parties related to standard software and the contract for software specially developed for the intended purpose of particular customer. This classification considers that contracts for development of software for intended purpose are regarded as the contract for service, while contract that engage standard software are considered as sales. Furthermore, it can be viewed that often the delivery of software is followed by various supporting services involving system support, installation support service and training as evident in the case of Salvage Association v CAP Financial Services [1995] FSR 654 and South West Water Services v ICL. Such contracts are often considered as sales, as they do not involve manufacturing of software and even the service does not constitute to the obligation of the party who provides such services (Lloyd, 2011; White, 2007). Unreasonable contract in the United Kingdom is not enforced. The Unfair Contract Terms Act of 1977 seeks the court to focus on certain important factors in making a reasonableness such as whether the goods was brought in a special order by the purchaser and the bargaining power between the parties involved in the transaction. Furthermore, the other factors comprise the potential degree of understanding acquired by buyers expressed in the form of a contract, whether the assigned contract limits liability due to non-compliance and whether it was practical to expect compliance at the time of agreement. Concerning with the aspect of reasonableness relating to the case of Saphena Computing v Allied Collection Agencies Ltd, the court stated that software product, even if recognized as a good, would not be considered as a commodity. Furthermore, as mentioned in the case that proper use of software product for particular usage cannot be considered as a fundamental aspect (Blythe, 2005). In the case of Salvage Association v CAP Financial Services [1995] FSR 654, the court applied a new trend where it had rigidly applied the notion of reasonableness test, despite there was no such confusion regarding the involvement of both the parties in a business transaction. Furthermore, in relation to the case of Salvage Association v CAP Financial Services [1995] FSR 654, certain important factors were considered, while deciding the issue of reasonableness. These factors include the relative bargaining power of the parties, which denoted that whether the court is dealing with the parties of equal bargaining strength and the type of tasks undertaken wherein it has been affirmed that tasks including high risks of failure shall contribute towards reasonableness. Moreover, the other factors are liability, which would be excluded due to the condition of work, sums of money involved and the insurance to meet related risks. In the case of Salvage Association v CAP Financial Services [1995] FSR 654, CAP Financial Services had stated that each person who would be assigned with the project tasks would reveal necessary skills. However, CAP Financial Services was unable to assign sufficiently competent personnel tothe project and resulted in the breach of contract, due to its failure in delivering required computer system. This made Salvage Association entitled to the termination of the contract.Notably, Section 13 under the Supply of Goods and Services Act of 1982 requires that any business delivering a service must perform it with maximum care and skill. In the case of Salvage Association v CAP Financial Services [1995] FSR 654, the supplier is liable for carrying out the services required to be perform with reasonable care and skill (Lloyd, 2011). The Sales of Goods Act of 1979 and 1982 Act were amended in the year 1994 to seek quality of software delivered need to be “satisfactory.” The subsequent factors including fitness for purposes to which the goods are supplied, appearance along with finish, free from minor defects, durability and safety were taken into concern in order to determine the quality of the goods. Evidently, in the case of St Albans City and District Council v International Computers Limited, a claimant made by the court that there was an implied term that software shall be reasonably fit for the intended purpose, as the supplier was aware of the necessity of the program to perform a mentioned function effectively. However, in the case of Saphena Computing v Allied Collection Agencies Ltd,the court proclaimed that the contract between the parties contained a term of implied fitness related to the intended purpose, as the buyer communicated the purpose duly to the supplier. Nonetheless, the court observed that it was not the breach of warranty per se to provide software with defects. Hence, the injunction was delivered seeking for reasonable time period in order to eliminate the defects (White, 2007). On the other hand, the case of South West Water Services v ICL provides valuable idea regarding the software quality. Accordingly, South West Water Services had made two contracts with International Computer Limited (ICL) involving a turnkey agreement and a project management agreement. The contract required ICL to provide a client service system to South West Water Services. When ICL affirmed that it would be unable to provide the system to specification and in accordance with the predetermined set of procedure, South West Water Services sued ICL for breach of contract. The two agreements that made by the parties comprised a clause, based on the standard contract of ICL, which advocate limiting ICL’s liability related with claim made against loss or damage. Thus, a new call for tenders was commenced and thus, the ICL entered into the negotiation related with customization of package created by third party i.e. Creative Computer Systems (CCS). After extensive discussion, the contract was tendered to ICL in September 1994 with the completed system being delivered on 31October 1995. However, the work progress was poor and the delivery date was extended. After few months, notice regarding termination of contract was served. An action regarding recovery of sums along with damages was taken. Similar to the case of Albans DC v. International Computers Ltd, the court in the case of South West Water Services v ICL rejected the argument presented, which entailed that contract had been made on one’s written standard term of business, as the changes have been negotiated and duly agreed (Lloyd, 2011; White, 2007). With regard to the case of SAM Business Systems Ltd v Hedley & Co [2003] 1 All ER (Comm) 465, it was identified that SAM Business Systems Ltd claimed the sum of ? 310,510 as an outstanding license fee for the software system, which the company has supplied to Hedley & Co. However, Hedley & Co did not support this claim as there were certain defects in the system. Regarding the claim made by SAM Business Systems Ltd, exemption clause satisfied the prerequisite of reasonableness under the Unfair Contract Terms Act 1977. In this regard, the court found that both the parties had equal bargaining strength corresponding to size and resources. It was a standard feature that the computer software industry would follow certain strict terms exempting all or partial liability while supplying software. In relation to the case, it was claimed that Hedley & Co had not tried to negotiate with SAM Business Systems Ltd. Accordingly; Hedley & Co was ascertained not to be entitled with the claim against the expenditure made to SAM Business Systems Ltd (Pinsent Masons LLP, n.d.). Conclusion It has been ascertained from the above discussion that law of digital contracts has been rapidly emerging as an important aspect in the global legal and business arena. In this regard, it can be affirmed that software from the legal viewpoint is notable for two pivotal reasons. Correspondingly, first reason deals with its unique characteristics, according to which, software is ascertained to have no concrete relationship with conventional chattel. Another reason is associated with the fact that software does not have distinct legal entity. These statements imply that there is no specific criteria through which software associated disputes can be resolved based on appropriate legal treatment. Hence, such uncertainty has led to the evolution of question whether software is to be considered as goods or services. In order to consider software as goods or services, it needs to satisfy the two fundament principles of tangibility and movability. Accordingly, it was ascertained that software can be transfer and can be possessed by an individual, which made it clear that software is good. It can be argued that distinguishing software as goods or services have firm impact on the duties and liabilities of service suppliers and sellers. However, concerning with the law of contract and its implications, it has been found that transaction of software is a contract, which involves supply of services instead sale of goods. It has further been identified that contract concerning with the development of software for specific purpose is often considered as the contract for service. On the other hand, the contracts related with standard software are often regarded as sales. Thus, it can be concluded that software can be classified as goods or services relying upon the action perform by the parties in a particular contract. References Blythe, S. E., 2005. Contractual Liability of Suppliers of Defective Software: A Comparison of the Law of the United Kingdom and United States. Northwestern Journal of International Law & Business, Vol. 26, Iss. 1, pp. 77.94. Green, S. & Saidov, D., 2007. Software as Goods. Journal of Business Law, pp. 1-19. Lloyd, I. J., 2011.Information Technology Law.6th ed.Oxford University Press. Pinsent Masons LLP, No Date. Sam Business Systems v Hedley. Computer Law Report. [Online] Available at: http://www.out-law.com/page-8710 [Accessed November 21, 2013]. Schwanzer, M., 2007. A Report on the Legal Implications of International Business Networks Entering Into a Project to Provide Anti-Trust Solutions Ltd with Hardware and Software. University of Central Lancashire, pp. 1-9. White, A., 2007. A Review of the Court of Appeal Decision in St Albans City and District Council v International Computers Limited. The Journal of Information, Law and Technology (JILT). Read More