Analysts Warn Vendors On Software Liability

Gartner analysts have warned software vendors to be on their guard when it comes to the promises they make to customers about their products.

Two recent rulings by The Technology and Construction Court of the High Court of England and Wales prompted the analyst firm to revisit research predictions of a looming tide of software liability cases back in 2007.

Following high-profile damages awarded to BSkyB in its case against EDS earlier this year, the same UK court ruled software vendor, Red Sky IT of Hounslow, was liable for damages beyond the value of the software it sold to Kingsway Hall Hotel, including losses of revenue and staff costs.

“Red Sky promoted its software as fit for the purpose that Kingsway had intended to use it, but the court found it wasn’t,” explained French Caldwell, Gartner research vice president, who also pointed out the damages awarded were for business losses and amounted to four times the original cost of the software.

Liability lies with the vendor

In 2007, Caldwell said he saw the beginnings of a shift in software liability from the end user to vendors. He predicted that, by 2015 in the US, and soon after in the European Union, representations of software product and services capabilities and specifications would become legally binding to vendors, and would confer liabilities on vendors that far exceeded contract values.

He said he was surprised that the UK courts have led the way: “I didn’t expect to see ruling like this so soon, or in the UK, which isn’t as litigious a society as the US. The software industry is growing up.” But the emerging specialist competence of the UK court and its lack of federal legal interpretations seem to be favouring the end user.

He also said that, as software delivery moves more towards service and cloud-based models, the burden of liability could only transfer more responsibility to the vendor.

“Vendors need to be very clear what purpose their software is fit for,” Caldwell advised. “They should have a sales and marketing code of conduct and even document the documentation they supply customers with. So, if mistakes do happen and a legal remedy is sought, they can prove what information they provided and perhaps limit liabilities. ”

For end users, he added: “Customers need to understand their requirements very well. Write a scenario of how you would expect to use the software according to your business operations and get the vendors to execute against that. Regardless, if there are mistakes, these recent cases prove there can be legal remedies.”