The Australian Consumer Law (ACL) includes computer software in the statutory definition of a good. This definition is particularly relevant for software vendors as it impacts how software can be licensed and the ramifications this may have on limiting liability. This article will explore the differences and consequences of supplying software as a service or good.
Software as a Service
Software as a service (SaaS) typically describes software that is licensed to users. This is most often the case for software downloaded online or software that may have the capacity to be used solely online or via cloud services.
Software as a Good
Software as a good requires an actual tangible product that can be physically moved. For example, the sale of a CD-ROM. A key consequence of computer software being considered a good is that the vendor must guarantee “undisturbed possession”. This is similar to the concept of purchasing and owning a book and having exclusive possession of the book. As this is a consumer guarantee, a computer software vendor cannot contract out of providing a customer with undisturbed possession of the software.
Since software is considered a good according to the ACL and a consumer guarantee for goods requires undisturbed possession, this can lead to problems when it comes to licensing the software. A software licence effectively gives the end-user with certain rights to use the software, but this does not prevent other licensees from using the software. The key issue here comes down to a third party (i.e., another licensee of the software) possibly infringing the rights of the end-user, and subsequently having a potential claim against the software vendor.
Although consumer guarantees prevent software vendors from limiting their liability through a written agreement, the ACL provides for an exception that can assist in limiting liability. Under section 51 of the ACL, the software vendor has legal title to the goods, including the right to sell. This clause ensures consumers are not disadvantaged by claims that might be made against goods when the vendor has no right to sell the goods. However, if the vendor is transferring title from a specific contract for the supply of the good, section 51(2) states that a guarantee may not apply. This is referred to as a ‘supply of limited title’.
To limit their liability, software vendors must prove that title has been transferred. For example, would the possession or download of a software file be sufficient to establish a transfer of title? If transfer of title can be proven by a vendor, a modified guarantee would take effect. This guarantee would mean that a consumer no longer has the right to undisturbed possession of the good. This may also limit possible claims by third parties by the consumer.
If you are a software vendor that has a licence agreement in place, it is a good idea to ensure that these terms and conditions protect you. As the ACL builds in certain consumer guarantees, this may prevent the limitation of liability.
If you are a software vendor that has a Licence Agreement and you have not updated it since the ACL’s introduction, get in touch with our IT law team.
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