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As a business owner selling goods or services, there are certain promises you need to make to consumers of your products. These promises are known as consumer law guarantees and are found in the Australian Consumer Law (ACL). Whether you sell goods or services will impact what guarantees you need to make. It will also impact what remedies you will need to provide should you breach the guarantees. If your business sells software, you must understand whether your software is a good or a service. This way, you can ensure you are meeting your legal obligations. In this article, we explore this question and outline the guarantees you must comply with as a seller of software.

Consumer Guarantees

The consumer guarantees differ depending on whether you are selling goods or services, so it is important to understand which you are selling. Sometimes it will be obvious, and sometimes it may not be obvious.

Consumer Guarantees For Goods

There is a list of nine consumer guarantees that apply to goods, including that the goods must:

  • be of acceptable quality; 
  • match their description; 
  • be fit for purpose; and
  • come with undisturbed possession.

If you do not meet any of these nine guarantees, the consumer will have access to certain remedies, including a:

  • repair;
  • replacement; or
  • refund.

Consumer Guarantees For Services

Businesses which sell services to consumers need to make sure that the services are:

  • provided with due care and skill;
  • fit for purpose; and
  • provided within a reasonable time (where a timeframe is not specified). 

If you do not meet these guarantees, the consumer may have an entitlement to:

  • reperformance of the services;
  • a refund; or
  • monetary compensation. 

Depending on whether the failure to meet a guarantee is a “minor” or “major” failure will impact whether it is the consumer or the supplier who chooses the remedy.

If your software is a service, it does not need to come with undisturbed possession. Instead, it needs to meet the consumer guarantees relating to services.

Is Software a Good or a Service?

The ACL includes computer software in the 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. However, software comes in many forms – it can be both a good and a service. 

Software as a Good

Traditional software is a good because, at least initially, it was delivered via a tangible product such as a CD-ROM and installed and maintained on-premises.

A key consequence of computer software being considered a good is that the vendor must guarantee “undisturbed possession”. This is similar to the idea of buying a laptop and having exclusive, undisturbed possession of the laptop.

Software as a Service

Software can also be a service. Software-as-a-Service (SaaS) has recently become one of the most popular ways of selling software. SaaS is usually delivered online via a cloud-based application. Businesses can licence SaaS software to users, often through a subscription. In SaaS, the consumer does not get a copy of the software (as a good). Instead, they get a right to access the software (as a service). 

Software Can Be Both a Good and a Service

It is important to note that it is not necessarily clear cut that all SaaS is a “service” under the ACL. Rather, software may be both a good and a service, depending on:

  • how it is installed or accessed;
  • how it is licensed; and
  • any additional parts or services it comes with. 

If you do not sell software, but instead you develop software, you will need a software development agreement for the services you provide. Software development sits fairly neatly within the category of “services”. However, if you also sell goods, you will also need to provide the consumer guarantees relating to goods.

It is important to seek legal advice as to the consumer guarantees that apply to your software. Further, your contracts must not confuse or mislead consumers as to their rights under the ACL.

Contracts With Customers

All software providers will need a set of terms and conditions in place with their customers. The way you deliver the software will impact the format of the terms and conditions.

For example, when an individual customer accepts Netflix’s terms and conditions, they would tick a box to indicate acceptance. 

In contrast, when a large corporation purchases a customised piece of software, this contract may be heavily negotiated and each party signs the final document either with wet ink or digitally (often using a document signing platform). 

The consumer guarantees are mandatory, and you cannot contract out of them. This means that you cannot have a clause in your contracts which contradicts the guarantees or attempts to confuse consumers as to their rights. 

Key Takeaways 

If you sell software, it is imperative that you know whether you need to comply with the consumer guarantees relating to:

  • goods;
  • services; or
  • both.

Your contract should contain an Australian Consumer Law clause setting out your customers’ statutory rights. If you have any questions about the consumer guarantees, or if you need assistance drafting or reviewing your software contracts, contact LegalVision’s IT lawyers on 1300 544 755 or fill out the form on this page.

 

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