‘New’ Software Creates Licensing Problems

In a famous 1882 experiment, researchers found that if you placed a live frog in water and then raised the temperature slowly, the frog would never notice the change, even to the point of being boiled alive. CIOs should be familiar with that feeling.

Over the past 20 years, software vendors have shifted the nature of their offerings from a product–packaged software–to a service. The recent move to Internet-based service-oriented architectures has accelerated this change: As software architectures become more modular, a typical application is built with more pieces from more vendors, which means more deals to be arranged.

While there are many benefits to this software approach, there are some dangerous legal consequences to the change.

The purchase of products is governed by the law of sales, encapsulated in the Uniform Commercial Code. Drafted in the 1950s, the UCC establishes a neutral set of default terms and conditions that apply to any sale of goods–unless altered by the parties.

Services, on the other hand, are subject to the nebulous, poorly defined law of licensing, which covers the use of someone else’s property. For example, your ticket at the movie theater is a license to use a seat for the limited purpose of watching a particular showing of a particular film. You don’t buy the seat; you rent it, and only under the terms set by the theater.

The difference is significant. Under sales, purchasers have the right to do anything they want with a product, including reselling it.

There are no such protections with a license, so software vendors can and do write their agreements to say whatever they want. Consider the 11-page business license for Windows Vista. One section says the license can be transferred only once. Another paragraph limits the damages you can claim from bugs or other product failures to the amount you paid for the software, “even if Microsoft knew or should have known about the possibility of damages.”

Businesses, especially large ones, can–and often do–negotiate the terms of a software license. Ironically, that difference can make things worse for you. Though courts and legislatures in some states refuse to hold consumers to the more onerous terms of a non-negotiable shrink-wrap license, they usually enforce a license between businesses as written, based on the theory that it’s a contract between two equal parties.

This is not one of those cases in which the law has failed to recognize a changing business environment. In 1999, the same organization that drafted the UCC proposed the Uniform Computer Information Transactions Act to cover software and other information licenses. But many considered UCITA lopsided in favor of vendors, so it went nowhere.

With UCITA essentially dead, hopes for a uniform law of software terms and conditions have been dashed. For consumers, bad publicity for the vendor is often the only way to get relief from serious breakdowns. Businesses can hope for the same.

However, as software increasingly migrates from back-office support applications to mission-critical customer-facing applications, there’s no excuse for failing to negotiate terms that protect your business.

And not even reading the proposed license? Well, that can get you into serious hot water.

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