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Warranty and Liability Hypotheticals for UCC Article 2B

(This paper was initially circulated at the meeting of the Uniform Commercial Code Article 2B Drafting Committee on April 26-28, 1996 in Philadelphia. These readers were all familiar with the Code, so they would immediately know the results of these hypotheticals. For those less familiar, the point of the exercise is to illustrate that:

At some point I might "work" these hypos (put section citations to explain what actually will happen to the customer) but for now, I prefer to leave them as an exercise to the reader. These give you concrete examples that can steer your reading of Article 2B. )

 


Here are some examples of issues that concern me in mass-market software. Most of these are disguised but not exaggerated variants of real-life situations.

I think that there would be great value in stating, directly, in the Official Comments, how the final Article 2B handles each case (i.e. what result).

In some cases, the answer will be that a certain example raises a legitimate problem that should give rise to liability on the licensor's part, but that the Committee feels that the UCC is the wrong source of law to address the problem (e.g. it should be in tort law). I hope that you can explicitly point this out. My belief is that some States today would treat some issues as contract issues that other States handle in tort. By eliminating coverage under the UCC, we eliminate liability in these States. I'd like a chance to research the examples that you classify as "tort law" in order to check for and advise the Committee of such problems.

 


(1) Jane was laid off three months ago. After an unsuccessful job search, she is starting up a home-based business. In her State, a consumer transaction involves a purchase for "personal, family, or household use" and therefore her purchases of computer equipment and software for this very small business do not fit within the State's consumer protection laws.

Jane spent $50 on a sales tracking database at her local computer store. The program's packaging says that it generates 100 different reports. Before her purchase, she saw an advertisement that showed samples of each one. Because of this selection of reports, she chose this product over an easier-to-use competitor that was better rated in the magazines.

After she took the software home, she opened the package and out fell the usual disclaimer of all warranties, express and implied, along with a limitation of remedies to, at a maximum, a refund of the purchase price. Incidental and consequential damages are excluded. The program also displayed the disclaimer when Jane installed it on her machine. To complete installation, she had to click the "I Agree" button at the bottom of the screen, which was displayed along with part of the warranty disclaimer.

A few weeks later, Jane attempted to run one of the reports. Even though she followed the directions in the manual precisely, the program could not display or print this report. She wasted about three hours trying to get the program to print this report. Eventually, Jane phoned the software publisher (a toll call) and waited on hold for 1.5 hours. After an additional half an hour of on-again, off-again discussions with the publisher's customer service representatives, one representative finally admitted that the program had a bug and could not print this report.

The program will generate the other 99 reports. In the publisher's view, this one is minor. Jane doesn't dispute that it is a less important feature than some others, but she feels that she wouldn't have bought the program without this report.

Jane asks for a bug fix, but there isn't one available. Nor is a maintenance release for this program scheduled. Jane asks to be allowed to return the software in return for a refund of the $50 purchase price and the $24 in telephone toll charges she has spent on this two-hour phone call. The publisher refuses. It never reimburses incidental expenses. And as to the refund, this is not a material breach of the express warranty created by the packaging and advertisements. The program substantially conforms to them -- it's just missing a feature. The publisher offers to refund $0.50 to reflect the fact that 1% of the reports don't work.

Should Jane collect her $74?

To complicate life, consider the following alternative additional facts:

1(a) (knowledge, pre-release) Suppose that the publisher knew about this failure when it released the product, but it chose not to fix the problem, nor to change the packaging, nor to correct the manual, nor to advise the customer of this problem on an errata sheet. What result in this case?

1(b) (negligent failure to discover the problem, pre-release) Suppose that the publisher didn't bother testing most of the reports. Nor did it take other steps to ensure that the reports were coded properly. On reviewing the publisher's development practices, most independent experts would conclude that the publisher's development practices fell below the customary level of care in the industry.

1(c) (non-negligent failure to discover the problem, pre-release). This problem was introduced very late in development as a side effect of a correction of a different problem. The software publisher had already tested all reports several times, and had no reason to expect this side effect. It sampled the reports, one last time before releasing the software, and found no problems. Jane is the first customer to complain about this problem, and this is the first time the company has heard of it.

 


2 Jane (the start-up tiny one-person-at-home business that doesn't qualify for consumer protection) buys a Brand X software product for $50, at her local computer store.

After she took the software home, she opened the package and out fell the usual disclaimer of all warranties, express and implied, along with a limitation of remedies to, at a maximum, a refund of the purchase price. Incidental and consequential damages are excluded. The program also displayed the disclaimer when Jane installed it on her machine. To complete installation, she had to click the "I Agree" button at the bottom of the screen, which was displayed with part of the warranty disclaimer.

Brand X charges customers $5 per minute for support from the first day. There is no warranty, no warranty period, and no free support.

After using the program for a day, she is blocked by a bug that stops her from using some of the advertised features of the program. She calls Brand X for help, and gives the customer service representative her credit card number. Jane is not a very technical person. It takes 20 minutes ($100 in charges to her credit card) for her to explain her problem in a way that the customer service representative recognizes it as a well-known (inside Brand X) bug.

The service rep gives Jane a "workaround" that allows her, with extra effort, to make the program behave itself. Jane accepts the workaround but asks for a refund of the $100 charge for support because she was calling about an actual error in the program.

Brand X, of course, refuses to reimburse customers for incidental expenses. What result?

2a) (Intentional) All costs considered, Brand X spends about $3 per support-minute. It collects $5. These calls are a profit center. Recognizing this, an executive decided that a few bugs should be introduced into the software. They shouldn't corrupt any data or do anything else that puts the company at risk. But they should increase the probability that a new customer will call for support. Many customers spend more on bug-related support calls for this product than they do on the software itself.

2b) (Known bug) Brand X didn't deliberately put this bug in the software, but it knew about the bug before it released the program. It didn't fix the bug, the manual, the packaging, etc. In-house staff joke about it as a profit center.

2(c) (Negligent) Brand X's development processes were so sloppy that it shipped the product without knowledge of the bug, but a reasonable company in Brand X's situation would have prevented this bug or found and fixed it.

2(d) (Innocent). Brand X took reasonable measures to prevent and find bugs but this one slipped through.

 


(3) Brand X Co. publishes a computer program. Inside the Brand X Co. box is the usual disclaimer of all warranties, express and implied, along with a limitation of remedies to, at a maximum, a refund of the purchase price. Incidental and consequential damages are excluded. The customer, Joe, is like Jane (question 1). A tiny one-proprietor business that is unprotected by his State's consumer protection laws. He first learns of this disclaimer a day after buying the prepackaged software at a local computer store. The disclaimer is displayed when Joe installs the software. To complete installation, he clicks the "I Agree" button at the bottom of the screen.

While Joe is using the program in a normal and reasonable way, the program corrupts the file allocation table on his hard disk. He paid a technician $800 for the 10 hours work that was required to rebuild the file allocation table. Had he not spent this money, he would have lost all of his data. This is the going rate for such work in Joe's city. He demands the following remedies:

Under the circumstances listed below, which, if any, of those remedies should Joe receive?

3(a) (intentional) Brand X Co.'s software was designed to corrupt the user's file allocation table when it determined that the copy of the software that was in use was an unlawful copy. In this case, oops, it was mistaken about the origin of the copy.

3(b) (knowing, before the fact) Brand X Co. discovered this problem during development and estimated that it would affect only 1% of its customers. Rather than delaying the software until after the peak selling season. Brand X decided to ship the software with the bug.

3(c) (knowing, after the initial release) Brand X Co. discovered this problem only after releasing the software. Several dozen customers contacted the company with this complaint. The company was able to verify the existence of the problem in the software. Rather than losing sales while the software was being fixed, Brand X Co. decided to keep selling the software. Joe's copy was from a lot that had been manufactured and shipped after Brand X Co. had verified (but not fixed) the defect.

3(d) (Negligent) Brand X Co. released the product without knowledge of this bug, but it would have found the bug if it had used procedures that are employed by most other mass market software publishers.

3(e) (non-negligent) Brand X Co. released the product without knowledge of this bug, and the problem is very subtle. Most independent experts would testify that Brand X Co.'s programming and testing procedures were in line with industry norms.

 


4. Brand X Co. publishes a computer program. Inside the Brand X Co. box is the usual disclaimer of all warranties, express and implied, along with a limitation of remedies to, at a maximum, a refund of the purchase price. Incidental and consequential damages are excluded. The customer, Joe, is like Jane (question 1). A tiny one-proprietor business that is unprotected by his State's consumer protection laws. He first learns of this disclaimer a day after buying the prepackaged software at a local computer store. The disclaimer is displayed when Joe installs the software. To complete installation, he clicks the "I Agree" button at the bottom of the screen.

While Joe is using the program in a normal and reasonable way, the program corrupts his data file. This file was created by this program and is only used by this program. This file stores data that Joe entered while using the program. With patience and work, someone who really knows the file structure can recover most of the data.

Joe demands the following remedies:

Under the circumstances listed below, which, if any, of those remedies should the customer receive?

4(a) (intentional) Brand X Co.'s software was designed to corrupt the user's data file under special circumstances (in this case, the problem was that the customer had not yet made the next license fee payment for continued use of the software);

4(b) (knowing, before the fact) Brand X Co. discovered this problem during development and estimated that it would affect only 1% of its customers. Rather than delaying the software until after the peak selling season. Brand X decided to ship the software with the bug.

4(c) (knowing, after the initial release) Brand X Co. discovered this problem only after releasing the software. Several dozen customers contacted the company with this complaint and the company was able to verify the existence of the problem in the software. Rather than losing sales while the software was being fixed, Brand X Co. decided to keep selling the software. Joe's copy was from a lot that had been manufactured and shipped after Brand X Co. had verified (but not fixed) the defect.

4(d) (Negligent) Brand X Co. released the product without knowledge of this bug, but it would have found the bug if it had followed procedures employed by most other mass market software publishers.

4(e) (non-negligent) Brand X Co. released the product without knowledge of this bug, and the problem is very subtle. Most independent experts would testify that Brand X Co.'s programming and testing procedures were in line with industry norms.

 


5. Brand X releases a tax preparation program. Jane buys it, to use to file her personal tax returns. (At last! A consumer product! Alas, in her State the consumer protection statutes are quite modest.) Jane buys Brand X at the computer store and there are no disclaimers on the box. Inside the Brand X Co. box is the usual disclaimer of all warranties, express and implied, along with a limitation of remedies to, at a maximum, a refund of the purchase price. Incidental and consequential damages are excluded. Jane first learns of this disclaimer a day after buying the prepackaged software at a local computer store. The disclaimer is displayed when she installs the software. To complete installation, she clicks the "I Agree" button at the bottom of the screen.

Unfortunately, Brand X loses data this year. Sometimes it under-reports income, sometimes it loses some deductions. The IRS discovers this pattern and chooses to audit most returns that were created using Brand X Tax. Jane was audited as part of this Check-Brand-X enforcement effort. The auditor discovered that Jane's tax return under-reported her income. She was required to pay penalties and interest. Jane had never been audited before, had never cheated on her taxes, and did not knowingly submit an erroneous return this time. Darn that Brand X Tax!

Jane demands the following from Brand X:

5(a) Brand X released the product with knowledge of these bugs

5(b) Brand X released the product without taking proper steps to prevent or discover these bugs

5(c) Brand X made a boo-boo that could have happened to any other company in the industry. Its development and testing processes were entirely reasonable, in comparison to industry norms.

 


6 The Brand X Lawyer says "Fire Your Lawyer and Use Ours Instead" on its box. It costs $99 and sells in office supply stores. The package and advertising promise documents (such as wills, eviction notices, etc.) that are valid in all 50 States.

Inside the Brand X Lawyer box is the usual disclaimer of all warranties, express and implied, along with a limitation of remedies to, at a maximum, a refund of the purchase price. Incidental and consequential damages are excluded. The customer, Fred, is like Jane (question 1). A tiny one-proprietor business that is unprotected by his State's consumer protection laws. He first learns of this disclaimer a day after buying the prepackaged software at a local computer store. The disclaimer is displayed when Fred installs the software. To complete installation, he clicks the "I Agree" button at the bottom of the screen.

The program is unsatisfactory. For example, when preparing a will, it fails to ask questions that any competent lawyer would ask. Also, it generates wills that are not valid in some States, partially because its step-by-step guide for getting the will witnessed contains errors. An attorney making these mistakes would be liable for malpractice.

Fred uses Brand X Lawyer, receives some unenforceable documents, and loses a lot of money as a consequence. There are various types of consequential damages. Fred wants to collect all of the consequentials that he could have collected in a successful suit for legal malpractice.

Brand X insists that it has successfully limited its damages exposure, and will provide only a refund.

6(a) Brand X knew the program was this bad when it shipped it.

6(b) Brand X should have known that the program was this bad.

 


7. Brand X Co. publishes the Brand X Software Map CD. Load the CD in your computer, and tell the program where you are (city and nearest intersection) and where you'd like to go, and the program will print out a recommended route. Brand X's advertising promises that you will never get lost in a strange city again. While not explicitly promising that every route will be safe, the packaging plays up the risk and fear associated with not knowing a strange city, and tells the customer to "trust Brand X" to supply "great routes".

Inside the Brand X Co. box is the usual disclaimer of all warranties, express and implied, along with a limitation of remedies to, at a maximum, a refund of the purchase price. Incidental and consequential damages are excluded. The customer, Jane, first learns of this disclaimer a day after buying the prepackaged software at a local computer store. The disclaimer is displayed when she installs the software. To complete installation, Jane clicks the "I Agree" button at the bottom of the screen. She is a self-employed salesperson who bought this software to use in her small business. She is unprotected by her State's consumer protection laws

The question in each case is "Should Brand X be liable to this customer? If so, should Brand X be able to limit its liability to the $50 that the customer paid for the program?"

7(a) Customer is endangered (an injured) as a result of bad information supplied by the software. The problem was introduced into the software intentionally by the software publisher.

Unfortunately, the President of Brand X Co. despises Detroit and he therefore builds a bias into the software that will route people through Detroit's most unpleasant neighborhoods. Our customer follows the supplied route and, in an extremely dangerous neighborhood, her car is hijacked and she is robbed, beaten, and raped. Had the bias not been intentionally built into the program, the program would have supplied a different route that was shorter and substantially safer.

7(b) Customer is endangered (and injured) as a result of bad information supplied by the software. The problem was not introduced intentionally but was left in the software knowingly by the software publisher.

Unfortunately, Brand X Co. is using old maps, because it was able to acquire rights to them very inexpensively. The map directs Jane to take a path through city streets in a dangerous neighborhood, rather than a recently build freeway that will get her to her location more quickly and probably more safely. Before this software was released for sale, Brand X's quality control staff discovered this issue and recommended using an updated map. Their internal memo said "Somebody will be mugged if they follow these routes." Brand X decided to use the old map anyway. Jane followed the supplied route. In an extremely dangerous neighborhood, her car is hijacked and she was robbed, beaten, and raped. Had she taken the freeway, she would not have driven in this neighborhood.

7(c) Customer is endangered (and injured) as a result of bad information supplied by the software. The problem was not introduced intentionally but was left in the software negligently by the software publisher.

Unfortunately, Brand X Co. is using old maps, because it was able to acquire rights to them inexpensively. It has no idea whether these maps are useful or not. Its staff spend no time checking the accuracy of any of the maps or of any of the routes recommended.

Jane follows the supplied route and, in an extremely dangerous neighborhood, her car is hijacked and she is robbed, beaten, and raped. Had the program been loaded with a more recent map, it would have recommended a different, safer route.

7(d) Customer is endangered (and injured) as a result of bad information supplied by the software. The problem was not introduced intentionally and was left in the software non- negligently by the software publisher.

Brand X negotiated for current maps. Its staff did a reasonable job of testing that maps were properly loaded on the disk and that they were read properly by the software. Part of their checking involved making test routes for a few cities, and then checking the routes for accuracy and reasonability with that city's police department. The map supply company is reputable in its field. At the end of testing, Brand X had not tested all possible routes on all maps, but it had tested several routes on most maps. The software passed all of these tests. Brand X therefore had confidence that the maps were adequate for its purposes. Most independent experts would testify that Brand X Co. had met or exceeded industry norms in its checking of the software and the map data.

Unfortunately, unbeknownst to Brand X Co., one of the maps is missing a recently constructed freeway. Jane follows the supplied route and, in an extremely dangerous neighborhood, her car is hijacked and she is robbed, beaten, and raped. Had the program been loaded with an accurate map that included the freeway, it would have recommended a different, safer route.

 


8. Brand X Co. releases a multimedia game that makes lots of noise. The dynamic range of the noise is extremely large. The customer buys the game for his child. The child does something unusual (not erroneous, just unusual) and the sound from the speakers runs from very quiet to extremely loud, very quickly. The transition is so abrupt that it damages his computer's speakers.

The customer wants new speakers, along with a refund for the software.

What result if:

8(a) The extreme dynamic range was intentionally coded into the software as an in-house practical joke. The programmers had intended to take the joke out of the software before releasing it, but they forgot.

8(b) The company didn't code this intentionally, but it knew about the problem and the possible consequences before of shipment of the software.

8(c) Post-sale discovery -- the company didn't know of this problem at the time of release, but it learned about it from customer complaints. The customer bought a package that had been manufactured and shipped by Brand X after Brand X had verified the bug, but before Brand X fixed it. Brand X sold the software package without any warning of the problem.

8(d) Negligent programming or testing

8(e) Unfortunate, non-negligent accident arising from an unexpected set of circumstances.

 


9(a)-(e) Essentially the same case as 8, but the customer buys headphones for her child (because she's sick of the noise) and instead of blowing out the speakers, the game blows out the child's eardrums.

9(a) Intentional bug

9(b) Knowledge of the bug present before initial shipment of the software

9(c) Post shipment knowledge of the bug, acquired before the manufacturing run that produced this customer's copy.

9(d) negligent

9(e) non-negligent, unfortunate, unforeseen event

 


10. Jane (a sole proprietor of a small business) buys a word processing program at retail, for $100. The program never works. Jane complains to the software publisher, without much success.

Six months later, the publisher announces an upgrade, available for $70. This upgrade fixes the bugs that Jane complained about.

Jane calls the publisher. She wants a free upgrade to this working version. The publisher refuses and demands the $70 payment for the upgrade.

Should the publisher have to give Jane this fixed version for free?


Return to Bad Software: What To Do When Software Fails.

The articles at this web site are not legal advice. They do not establish a lawyer/client relationship between me and you. I took care to ensure that they were well researched at the time that I wrote them, but the law changes quickly. By the time you read this material, it may be out of date. Also, the laws of the different States are not the same. These discussions might not apply to your circumstances. Please do not take legal action on the basis of what you read here, without consulting your own attorney.
Questions or problems regarding this web site should be directed to Cem Kaner, kaner@kaner.com.
Last modified: Monday November 10, 1997. Copyright © 1997, Cem Kaner. All rights reserved.