How To Limit Defect Claims Under A Software License Agreement

Where do you start when a customer claims the software is defective. An inherent problem with software is there is nothing to see or touch. The problem is not like a clock that does not tell time. As a result, solving a defective product issue is challenging.

Start with establishing what the software should or should not do. The license agreement may be helpful where the warranty is limited to the software conforming to the documentation. But be careful, in one case the documentation was 5 banker’s boxes of coding instructions. More often there is no documentation for the software at all. By far the best approach is to require and comply with defect notice provisions.

In a warranty section, there should be a term that requires the licensee to provide notice of the defect and explain in detail what the defect is. So, if you have a 90 day warranty, and hear nothing from the licensee, they may have trouble proving any defect. This is also where the Uniform Commercial Code can be handy. Look at UCC § 2605. That section says a buyer waives objections they do not make. See Lockheed Electronics Company, Inc, v. Keronix, Inc. (1981) 114 Cal. App.3d 304. In that case, the debtor lost defect claims because they were waived.

When a buyer propely claims the software is defective, under the UCC, the seller can ask for a written statement of all defects the buyer intends to rely on. By this process, the seller can pin down the defects the buyer can assert as a defense. If the buyer declines to respond or limits the response, the defect claim is reduced or eliminated.  

Even where a raft of defects is permitted, the best approach is to point to a customer who successfully implemented the software. In one case, I asked if the arbitrator had a cell phone. It happened to use my client’s software as an operating system. I asked him if the software worked. He got the point, and we got the judgment.